Investor Signposts: Reserve Bank Board meets; Top shelf indicators return

CommSec Chief Economist Craig James takes a look at the economic events scheduled for the week ahead, including RBA Board Meeting, Retail Sales and International Trade data.

·      A busy week lies ahead. The Reserve Bank Board meets and key economic indicators will be released in Australia. Overseas, purchasing manager survey results dominate with payrolls data to be issued in the US.

·      In Australia, the week kicks off on Monday with CoreLogic issuing its closely-watched home value index for June. And it seems that Sydney and Melbourne prices have kicked again. Based on current data, home prices may have lifted by 1.5 per cent in June after recording a seasonal decline of 1.1 per cent in May.

·      Also on Monday the Performance of Manufacturing index is issued with building approvals and the ANZ survey of job advertisements.

·      The manufacturing sector is relatively healthy at present with the latest gauge from Australian Industry Group showing that activity eased modestly in May from 15-year highs.

·      The building approvals data from the Australian Bureau of Statistics (ABS) can be volatile from month to month. But it is the best early gauge of future construction, so the figures are analysed closely. Approvals have peaked but are not showing signs of slumping. Underlying demand for homes remains solid.

·      The ANZ job advertisement series hit fresh 6-year highs in May, and has lifted in four of the last five months. Job ads tend to lead employment by around 5-6 months so the outlook for the job market remains healthy.

·       On Tuesday, the Reserve Bank meets to decide interest rate settings. Meanwhile retail trade data is issued by the ABS while ANZ and Roy Morgan publish the usual weekly consumer confidence figures.

·       The Reserve Bank won’t be touching the official cash rate. In fact many economists believe the Reserve Bank could stay on the sidelines for the best part of another year.

·       The retail trade data should prove interesting. Survey and anecdotal evidence suggest that consumers are spending more, especially on services as opposed to traditional purchases like clothes and shoes.

·       On Thursday, the ABS releases the May data on international trade – in other words, the monthly export and import figures. The main complication with interpreting the results at present is the impact of Cyclone Debbie in disrupting coal and some agricultural exports. But in an underlying sense, healthy trade surpluses are being recorded.

Overseas: US jobs data in focus

·       It is a holiday-shortened week in the US with the Independence Day holiday celebrated on July 4. And no doubt many Americans will be keen to take an extra day of leave on the Monday, which could make for quiet times on financial markets early in the week. The data release of note is the non-farm payrolls figures to be released on Friday.

·       The week begins on Monday in the US with data on construction spending and new vehicle sales to be released as well as the ISM manufacturing index. Economists expect that vehicle sales rose by 1.4 per cent in June to a 16.9 million seasonally adjusted annual rate. And the manufacturing gauge is tipped to be flat at 55.0 – still well ahead of the 50 reading that divides expansion from contraction.

·       After a holiday on Tuesday, there are a spattering of indicators on the US menu for Wednesday. Data on factory orders is released with the ISM New York index.

·       In the US on Thursday the ISM services index is released together with the Challenger job layoffs series, ADP employment data, international trade figures and weekly data on claims for unemployment insurance.

·       Arguably the ISM services index is of most importance with economists tipping a modest fall from 56.9 to a still very healthy reading of 56.6 in June. The other indicator of note is the ADP jobs data, which can provide guidance on the official employment figures on Friday. Economists tip a 178,000 lift in private sector jobs.

·       And on Friday in the US, the influential non-farm payrolls data is issued. Economists expect that job creation lifted from 138,000 to 183,000 in June. While unemployment is seen as unchanged at 4.3 per cent, average hourly earnings (wages) may have grown by 0.3 per cent. If wages and jobs fail to lift as expected, further doubt will be thrown on the need – or the likelihood – of the Federal Reserve lifting rates again in 2017.

·       In China, the key dates for economic indicators are Monday and Wednesday. On Monday the Caixin purchasing manager’s survey for manufacturing is released. And on Wednesday the equivalent gauge for the services sector will be released.

Financial markets

·       Over 2016/17 the All Ordinaries index has tracked a range of just over 844 points – from almost 5,140 points to just over 5,980 points. At face value the range sounds significant – that is, before we put it in the context of history. The differential between highs and lows is 16.4 per cent, marking it as the least volatile year in 16 years.

·       The average differential for the All Ords over the period is actually just below 27 per cent, so it is clear that the sharemarket has been generally well behaved.

·       Another way to look at volatility is the number of daily moves either above or below 1 per cent. Over the past year there have been 31 days where the sharemarket has risen or fallen by 1 per cent in a day – the lowest result in 12 years.

Craig James, Chief Economist, CommSec

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