With the Reserve Bank now painting a more rosy picture for the Australian economy, we can expect to see that reinforced this week with a couple of significant bits of data and reports.
In his post board meeting statement, a speech on Thursday night and the first Statement on Monetary Policy for the year on Friday, RBA Governor, Phil Lowe revealed the central bank, while expecting a dip in growth this year, had a more upbeat outlook for the next couple of years, with inflation edging higher, growth hitting 3% a year or more, exports rising, jobs growth continuing and perhaps strengthening, an end of the investment boom slump and higher national income from the jump in our terms of trade.
It is a far more optimistic outlook than we have seen for a year or more from the RBA which had been more worried by sliding inflation, stuttering growth and slowing jobs creation, plus the continuing overhang from the ending of the resources boom.
In both cases however, high household debt and property price booms – especially in Sydney and Melbourne and a looming apartment oversupply, are the continuing downside risks, along with the health of the Chinese economy.
Corporate profits though will be a bit better than expected, as this week’s results will show, especially from the resource sector (see earnings story), and we will also get the January business survey from the NAB which is expected to show continued strength in business conditions.
January’s jobs figures from the Australian Bureau of Statistics on Thursday is forecast to show a modest rise of 10,000 new jobs with the unemployment rate remaining at 5.8%.
The Australian December half year and full year reporting season steps up this week and should also add support to the RBA’s view.
Some 61 major ASX 200 companies are down to report – the Commonwealth Bank is one, another is Telstra, but also JB Hi Fi, CSL, a trading update from the ANZ, ASX, IAG, Wesfarmers, Ansell, Treasury Wine Estates, The Reject Shop and Amcor as well as Cochlear.
By the time this week is ended we should have a very good idea of how well the corporate Australia’s profits are travelling (we know resources companies will see a big improvement, as we saw with Rio Tinto last week).
In the US, the focus is likely to remain on the noise coming out of Washington but also on Fed Chair Janet Yellen’s Congressional testimony (on Tuesday and Wednesday) which is likely to repeat the message from the Fed’s last meeting that it remains on track to hike further this year but that the process will be gradual.
On the weekend Staley Fischer, the deputy chairman of the Fed perhaps anticipated Ms Yellen’s comments when he told a conference in New York that there was significant uncertainty about US fiscal policy under the Trump administration, but the Fed would be strict in meeting targets of creating full employment and getting inflation to 2 percent.
Speaking at the Warwick Economics Summit on Saturday, Fischer also said he thought Dodd-Frank financial regulation would not be repealed as a whole, and he hoped capital requirements for banks would not be significantly reduced.
"There is quite significant uncertainty about what’s actually going to happen, I don’t think anyone quite knows. It’s a process which involves both the administration and the Congress in deciding fiscal policy,” Fischer said, in response to a question, according to Reuters.
“At the moment we’re going strictly according to what we see as our responsibility according to the law, which is maintaining full employment and getting inflation to 2 percent."
On Friday the Fed governor overseeing bank regulation, Daniel Tarullo, announced his resignation, sparking speculation that he had quit rather than resist the move from the Trump administration to water down bank regulations.
The resignation and Fischer’s comments have raised the focus on Ms Yellen’s response to questions at her appearance this week regarding the impact of the new president.
Also in the US the AMP’s chief economist, Dr Shane Oliver says we can expect headline CPI inflation (Wednesday) to have increased further to 2.4% year on year in January, but core inflation to fall slightly to 2.1% year on year (yoy), solid growth in underlying retail sales in January, flat industrial production, continuing strength in the home builders’ conditions index (all Wednesday) and flat housing starts (Thursday).
US December quarter earnings results will continue to flow with the likes of Cisco, Campbell Soup, Kraft Heinz and AIG reporting, plus foreign majors such as Nestle, Danone, Heineken and Credit Suisse.
In Asia’s Japan’s December quarter GDP data (tomorrow) is expected to show growth at 0.3% quarter on quarter or 1.8% yoy, which will be healthier than it has been for some time.
Chinese inflation data for January (also tomorrow) is likely to show a further rise in CPI inflation to around 2.3% yoy and a further uplift in producer price inflation to 6.5% yoy as the slump in commodity prices a year ago continues to drop out.
China’s preliminary trade figures for January (which were influenced by the week long Lunar New Year break) saw a big rise in exports and imports. Economists say it won’t be until March or April that we get a better idea of how the Chinese trade performance really is.
But imports of coal, iron ore, oil and soybeans were all solid, copper not so strong. iron ore imports were the third highest on record for a month at more than 92 million tonnes.
