Quite a week ahead: interest rates and house prices in Australia, fallout from the Henry Tax Review, jobs figures in the US, the Goldman Sachs saga, the Greek collapse or rescue tale, the BP Gulf of Mexico oil disaster, an election in the UK and quite a bit else
The key figure will be in the Reserve Bank decision on interest rates tomorrow.
Economists are divided and undecided on whether there will be a third rise in the cash rate this year to 4.5%.
The AMP’s Dr Shane Oliver says: "It’s not as clear cut as say a month ago, but last week’s inflation figures for the March quarter were higher than anticipated, which could prompt an increase.
"The pick-up in the quarterly pace of underlying inflation in the March quarter leaving it well and truly at the top end of the Bank’s target range coming at a time when economic growth has returned to trend, national income is likely to receive a strong boost from higher iron ore and coal prices and house prices are booming is likely to drive the RBA to continue the process of raising interest rates back to longer term average levels."
"While the problems in Europe, recent signs of caution in retail sales and housing finance and the upcoming Budget all suggest that there is a case to leave interest rates on hold, its more likely that the RBA will raise the cash rate by another 0.25%," Dr Oliver wrote on Friday in his weekly round up.
Macquarie Bank’s Rory Robertson said the strong house price data from PD Data Rismark on Friday, and good private credit numbers from the Reserve Bank (showing an upturn in business lending, strong growth in margin loans and credit cards and a rise in loans to housing investors has raised the odds for a rate rise.
"Indeed, if stronger local and global growth – and the re-run of Australia’s biggest-ever mining boom – continue to drag our unemployment rate back below 5%, prompting a re-run of the sort of economic overheating that so disturbed the RBA in 2007-08, then mortgage rates could threaten to revisit their previous peaks near 9%," Mr Robertson said in an update on the outlook for rates ahead of the RBA’s decision.
After the meeting tomorrow, the RBA’s second State of Monetary Policy for the year will be released on Friday with new growth and inflation estimates for the economy.
Both will be of greater interest than normal and will probably contain raised estimates.
The Australian Bureau of Statistics releases the capital city house price index today for the March quarter, building approvals for March on Wednesday and retail sales for the same month on Thursday.
They will be compared to the release last week of figures from Australian Property Monitors and RPData Rismark.
Interim profits from Westpac and the NAB after ANZ’s less than convincing result last week, followed by Macquarie’s slightly better report.
Car sales figures for last month are also due for release.
Dr Oliver says Australian retail sales data for March are likely to show a modest gain of around 0.5% after a sharp fall in February and average house prices are likely to have risen by another 3% in the March quarter, leaving them up a whopping 18% on year ago levels.
Economists will watch the building approvals release to see if there’s another (six or seventh) fall in March.
The trade figures for March will also be released on Thursday.
And we will also have the government’s response to the Henry tax review to contend with after the release of the report and the statement from Canberra.
Watch for lots of hot air and commentary on proposed tax changes and remember that most of them will be hot air and special interest pleading.
With a federal election due later this year many of the proposed changes might not eventuate.
These changes will pop up in the 2010-2011 federal budget the week after (May 11, the same week as the release of the ABS jobs figures).
The European Central Bank will leave interest rates on hold at 1% after the Greek rescue package and possible extra aid that will be needed to calm the nervous European financial markets.
Eurozone unemployment was 10% last month that was steady and came despite a fall in Germany that surprised the markets.
The UK election happens on Thursday and apart from the uncertainty of a possible hung parliament, will have no impact on markets, especially in Australia.
We will be better off continuing to keep a close eye on the strengthening controls on China’s surging property market.
In the US the big numbers will be the April jobs and unemployment releases Friday night, our time.
Another 200,000 plus jobs is the forecast for the month, after the 162,000 in March (which could be revised upwards as January and February’s figures were).
The unemployment rate is likely to remain stuck at 9.7%.
But worries over Greece’s debt, the BP oil disaster in the Gulf (which will delay offshore drilling in the Gulf, as well as the release of new areas) and the continuing investigations into Goldman Sachs will test market sentiment and that of investors.
News that the US economy grew an annual 3.2% in the first quarter (according to the first estimate), down from the annual 5.6% rate in the final quarter, was ignored by nervous investors in Friday’s sell-off in the US.
Not even the reappearance of solid consumer activity (up 3.6% in the quarter, according to the first estimate) could hold the attention of investors for very long.
So the release of US car sales numbers for last month will be closely watched to see if there’s a continuation of the surge brought about in March by higher company incentives for buyers (led by
