This week it’s Australian figures and economic reports that takes centre stage, thanks to the Reserve Bank board meeting tomorrow and Wednesday’s national accounts.
The growth figures for the June quarter will be the major release: they will confirm that growth rose from the March quarter to as much as 1%, according to the AMP’s chief economist, Dr Shane Oliver.
A survey by AAP of leading business economists put the growth estimate at around 0.7%, which would follow the 0.4% rise in the March quarter and the 0.6% fall in the three months to December. the September quarter last year saw growth of just 0.1%.
The RBA has forecast GDP to rise by 0.5% over 2009, rising to 1% in the year to June 2010 and by an annual 2.25% through calendar 2010.
Dr Oliver said the economy could see higher growth because of strength in consumer spending, business investment and exports.
Last Wednesday’s construction spending figures were flat, but that was stronger than the fall the market had been expecting, but the real surprise was the 3.3% rise in new business investment in the June quarter (it was up 16.9% over the 2009 financial year as well).
That easily topped market predictions for a 5% in the three months to June, and led some economists to lift their growth forecasts.
On top of this ABS data showed that retail sales rose by 2% for the June quarter, after inflation, above the 1.3% forecast from the market.
Before Wednesday’s release, we will also get figures on June quarter company profits, business inventories, the balance of payments and government finance, all of which will feed into the growth figures.
As well we will get new home sales, credit, building approvals and the sentiment survey for activity in the Australian manufacturing sector. that will be followed by similar surveys in China, Europe and the US, all of which are expected to show the various economies are rebounding.
The Reserve Bank is likely to leave interest rates on hold, but should remind us that sooner or later interest rates will have to be returned to more normal levels now that the economic emergency surrounding the global financial crisis is over.
The AMP’s Dr Shane Oliver says that "Australian economic data is continuing to surprise on the upside.
"Contrary to expectations for a fall, construction activity was flat in the June quarter driven by a surge in infrastructure investment.
"Business investment also defied expectations for a fall in the June quarter and actually recorded a strong rise.
"While investment tax breaks may have played a role in driving the stronger than expected investment data in the June quarter, investment plans for the year ahead were also upgraded.
"The upturn in business investment plans is consistent with the huge upswing in business confidence and the improving profit outlook.
"The continuing run of better than expected economic data both globally and in Australia signals that the chance of an interest rate hike by year end is steadily rising," he wrote on Friday.
Macquarie Bank’s Rory Robertson says there’s a big tip for a rate now in October.
"Certainly, this week’s brighter news on business investment is a big deal.
"And it may indeed prompt the RBA to decide that – with GDP growing (even weakly) rather than shrinking – its “emergency” 3% policy setting no longer is appropriate, given the lack now of any macroeconomic “emergency” – as opposed to a weak patch – in the Australian economy.
"Analysts quickly confirmed that October is six months after April (the month of the final rate cut), and that the RBA generally likes to leave “at least six months” between changes in the direction of policy.
"The next phase of speculation will involve analysts highlighting the prospect of 50bp (basis point) rather than 25bp hikes, given we’re starting from an extraordinarily low 3%."
And the National Australia Bank bought forward its rate rise forecast and now sees one happening in November.
"Markets have now more than fully priced a 25bps hike by November and, against the continuing flow of positive data both at home and abroad, especially in Asia, it now seems likely that the RBA will ratify the market’s expectations of rate hikes before Christmas," the NAB’s chief economist, Alan Oster said Friday..
"September and October still seem too early but by November we expect the time will be right for the first hike.
"We see the most likely path of policy being three consecutive 25 point increases in November/December/February, taking the policy rate to 3.75 per cent.
"After this, the RBA board is likely to pause as they view the flow of economic data and gain confirmation that the recovery is unfolding as expected.
"Two further 25 point moves in August and September 2010 are then likely, taking the rate to 4¼ per cent by year-end.
"Over 2011, we expect further policy tightening to 5½ per cent by the end of the year."
So, tomorrow’s post RBA board meeting statement will be viewed, pulled apart and parsed to see if any light can be shed on when rates will rise.
The private credit figures from the RBA today will show that housing is the only growth area for lending at the moment.
July’s trade figures are out this week and will be looked at to see if the improvement in exports is continuing.
The June 30 reporting season should wrap up today with a flood of results from small companies, mostly miners and oil group
