The Federal Budget dominates business and economics this week in Australia, while in the US it will be inflation and new house starts as well as surging oil prices tat will shape sentiment.
The AMP’s Dr Shane Oliver reckons the budget surplus will be at least $20 billion (or 1.7% of GDP), while the income tax cuts promised by the ALP in the 2007 election campaign, plus cuts and changes to welfare spending will also be highlights.
As well he’s expecting increased spending on education, training and infrastructure including the establishment of the Building Australia Fund, cutbacks in middle class welfare, tax increases on alcohol and cigarettes and public service cutbacks.
"In an environment of increasing economic uncertainty and growing pressure on households an aggressive tightening in fiscal policy is unlikely and the income tax cuts may not be such a bad idea after all," Dr Oliver said on Friday..
"The Budget is unlikely to alter the outlook for interest rates or have a major impact on financial markets, but it should help to develop Wayne Swan’s and the Government’s economic credentials."
Of interest will be the government’s estimates/forecasts for employment. As the jobs figures for April showed, the employment market remains strong, with jobs growth of 2.9% in the year to April.
But the Reserve Bank now forecasting a sharp slow down in domestic economic activity (outside the rebounding rural sector), employment is expected to decline over the next two years and the unemployment rate will quite likely rise from April’s 4.2% to well over 5% in a year’s time.
The RBA said in its second quarter Monetary policy Statement on Friday that it is looking for non-farm economic growth to slow from about 4% to 1.75% year’s end – the slowest since the post GST days in 2001, and before that, the bad recession of the early1990s.
Inflation is forecast to fall back into the Reserve’s target – 2 to 3 per cent – but not until the second half of 2010, and even then it will very likely be on the high side of the range. Interest rates should remain on hold for months, or be pushed higher in the last quarter of this year if price pressures continue to rise.
RBA Governor, Glenn Stevens is due to make a speech on the Australian economy on Thursday evening, two days after the budget.
We will also get local figures on housing finance, business and consumer confidence and the labour price index for the March quarter. That will be closely watched given the worries about inflation.
It’s likely that wages growth will remain around the 4% level of the last few years. The estimate for 2008-09 wages growth will be another test of the honesty of the first Rudd Budget.
CSR produces its full year results which will be hit by mixed sugar prices over the year (low, then high), and by the slowdown in Australian home building, especially in NSW). Harvey Norman’s first quarter sales figures are now expected this week. Both have seen share prices lowered by sceptical investors this year.
Chinese economic activity and inflation data will be released for April, and both are likely to remain robust, although Friday’s release of trade data showed a continuation of the recent slowing trend in April.
In the US watch for figures on retail sales, consumer prices, industrial production, housing starts, consumer sentiment, a survey of home builders and a couple of business surveys are due for release. US retail sales for April will be watched closely to see how US consumers are bearing up after some retailer figures last week suggested an improvement.
Oil’s move past $US126 a barrel on Friday was another reminder of the damage higher oil prices and inflation can do to economies, especially those in developing and emerging economies.
The impact of higher oil prices will be revealed on Tuesday, when the US Commerce Department reports April retail sales. Several major retailers, beginning with Wal-Mart on Tuesday will reveal quarterly profit figures. Department store Macy’s follows on Wednesday, ahead of rivals J.C. Penney and Nordstrom on Thursday.
The Consumer Price Index, due for release Wednesday will show whether higher food and fuel prices are trickling through the economy and sending the cost of other goods higher.
A rise of 0.3% in April is expected, matching the increase of 0.3%.
As oil prices rise, inflation is moving back to the top of the agenda and starting people think the US Fed will not cut rates for some months.
The US dollar is starting to trade a little firmer and hit an eight week high against the euro on Thursday before easing a little Friday. But oil prices still rose on supply concerns.
Friday sees April housing starts and the first reading for May on the consumer sentiment index from the Reuters/University of Michigan Survey of US Consumers.
MONDAY:
National Australia Bank business survey for April, housing finance figures from the Australian Bureau of Statistics. Scheme meeting for a possible merger between MBF and BUPA Australia (a UK company).
TUESDAY:
The 2008 Federal Budget; ABS lending finance figures for March, Harvey Norman 3rd quarter sales figures due.
WEDNESDAY:
ABS Labour price index for March quarter’s full year results, Singtel/Optus 4th quarter results.
THURSDAY:
RBA monthly Bulletin, RBA Governor, Glenn Stevens, speaks in Sydney at 8.30 pumas average weekly earnings for the February quarter; Coca Cola Amatil AGM.
