Economics

The local highlight will be a speech from RBA Governor Phillip Lowe at the Australia-China Relations Institute. While the focus will no doubt be on Australia’s export dependence on China and the benefits of trade to both countries, Lowe is also likely to discuss some of the recent economic news which shows entrenched low inflation and a softening outlook for the world economy.

Labour market issues will dominate the economic news with the quarterly wages and monthly labour force data both out.

Treasurer Scott Morrison will deliver the 2018-19 Budget on Tuesday night and from all accounts a range of upbeat economic forecasts will deliver a deluge of revenue that will fund income and company tax cuts and leave the budget on track for a small surplus in 2020-21. These issues, tax cuts, economic forecasts and the return to surplus, are likely to be the main aspects of the budget.

This week is all about the Reserve Bank.

All pumped up about inflation!

The ever-important labour force release will dominate local market news, especially when it come to the outlook for official interest rate settings.

It is a relatively quiet week for local data, with the main release the housing finance data for February. A flat result is expected.

After the Easter weekend, there is the veritable blockbuster of economic news this week. The highlight, at least emotionally, will be the monthly meeting of the RBA, but no one seriously expects any change in the cash rate or the RBA’s rhetoric when the policy press release hits the wires.

With the health of the labour market front and centre of the debate over the economy and the outlook for official interest rates, next week’s job vacancy data will shed more light on the demand for labour. Since the low point in 2013, the number of job vacancies has been trending higher, albeit as a moderate pace. The market consensus is for another moderate rise in the number of job vacancies, even though the hard data on economic growth has been generally disappointing since the start of the year.

Two super-duper economic releases coming up this week – the official house price series together with the next round of labour force data.

All eyes will be on the US inflation data as it will help frame expectations for interest rate hikes from the US Federal Reserve. With a further 25 basis point rate hike all but fully priced in to the next Fed meeting on 21 March, the inflation data will help form views on how many interest rate hikes will be needed in 2018 to ensure the pace of economic growth is consistent with the target.

It is a blockbuster week ahead for economics. There will be data on new building approvals, monthly inflation, the balance of payments, retail trade, GDP and international trade. On top of that is the monthly meeting of the RBA Board which is next to no chance of adjusting official rates from the current level of 1.5 per cent.

The top tier economic data continues to roll out. This week the market mover will be the private new capital expenditure survey, business investment in other words. After years of sharp declines where investment as a share of GDP fell to a 25 year low, there was a bottoming out around the middle of 2017.

The news next week on wages will be huge. Not just for judgments about the purchasing power of consumers, but vitally from a more medium-term inflation outlook given that most firms’ wages bills are a driver of future selling prices.

With the labour market such a pivotal issue for markets and policy makers alike, the next monthly update will be delivered by the ABS on Thursday.

It is a busy week for economic data but the highlight is likely to be the RBA Board meeting on Tuesday.

The December quarter consumer price index is the proverbial blockbuster data release on Wednesday. With the market pricing in two interest rate hikes by the middle of 2019, the momentum on inflation will be key to determining if such expectations are valid.

The European Central Bank meets this coming Thursday and while no one expects any change in monetary policy settings, the sharp and increasingly broad based pick up in economic activity is likely to see at least some commentary cover this increasingly favourable news. Some in the market are looking for the ECB to discuss the timetable for starting to reverse the super-stimulatory stance of policy.

Memo to RBA – be careful what you wish for, house prices are falling

The Federal government is set to release the Mid Year Economic and Fiscal Outlook on Monday which will provide up to date news on the budget and Treasury’s view on the health of the economy.

With economic growth ticking higher, the next instalment of “how’s the economy going” will be with the labour market data next Thursday.

Next week is one of the big ones for the economy, with the two highlights being September quarter GDP and the meeting of the RBA Board.

With the RBA and Treasury effectively betting the house on a pick up in business investment, the Private Capital Expenditure survey will be vital to see whether the tentative signs of a turn in investment in the non-mining sector has continued in the September quarter and more importantly, continued in the business investment expectations for the next year.

The minutes of the most recent meeting of the US Federal Open Markets Committee are to be released next week. With the market pricing in a December interest rate hike in the US, insights from the interest rate setting Committee will be raked over for clues on the likely path of monetary policy over the more medium term.

It’s all about the labour market with the dual highlights being the Wage Price Index and the Labour Force.

It has been seven long years since the last increase in interest rates in Australia. Since November 2010, the RBA has either left interest rates on hold at its regularly monthly meetings, or has seen fit to cut them.

One of the biggest questions confronting policy makers and market watchers is the health of the consumer. This makes the retail trade data for September next week the key release and after two straight months of decline, most economists are looking for a moderate rebound. The extent of that rebound will be an important guide on household financial well-being.

The September quarter CPI will take centre stage and it is likely to be a strong result.

The 19th National Congress of the Communist Party of China is being held amid a week where there is a torrent of data on the Chinese economy. In terms of the economy, the National Congress is likely to keep a focus on economic and financial stability whilst ensuring the risks from financial pressures linked to risks in the banking and property sectors are carefully monitored and managed.

With the eyes of the Reserve Bank firmly on the housing market, the release of the housing finance data will be scrutinised for more clues on the extent of the cooling in demand for housing. Over recent months, there has been a cooling in housing finance growth as a mix of tighter regulation, a lift in mortgage rates for investors and a more general souring in mood towards housing have all impacted.

In a week heavy with data and the regular meeting of the RBA Board, there will be keen interest in the retail trade data for August. Making up close to one-quarter of GDP, trends in retail sales have an important influence on the strength of the economy.

In the United States, the ‘final’ reading for June quarter GDP will be released and it is set to confirm that annual economic growth picked up to around 2.25 per cent from levels around 1.5 per cent a year ago. It is still below the 2.75 per cent or so that is considered to be the long run potential rate of expansion for the US.

The quarterly official Australian Bureau of Statistics data on house prices will be released and as always, it will focus the discussion on the strength or otherwise of the housing market. The other private sector indicators of house prices have generally seen some moderation in price growth, which if repeated in the ABS data will see annual growth slip below 10 per cent.

The labour force release will dominate the Australian data calendar next week with the highlights being the estimates of spare capacity in the labour market. The key points will be the rate of unemployment (currently stuck around 5.5 to 5.75%), the underemployment rate (currently around 8.5 to 9 per cent) and, linked to those, the momentum in jobs growth in both full-time and part-time work.

A huge week for data and events looms, with the RBA Board meeting all but certain to leave official interest rates unchanged.

The world’s central bankers and a plethora of economists will gather at Jackson Hole, Wyoming, USA, for an annual get together with the topic this year, “Fostering a Dynamic Global Economy”. While that is an important topic as the world continues to lurch unevenly from the global crisis which started 10 years ago, the market will be looking at the speeches and discussion for clues on monetary policy settings.