Post Budget Calm by Craig James – Switzer Broker

In Australia, economic data or events will be in short supply in the coming week with minutes of the last Reserve Bank Board meeting and consumer sentiment data vying for attention.

In the US, the minutes of the last central bank meeting are issued. And ‘flash’ readings on manufacturing activity are expected on Friday across the globe.

In Australia, the week kicks off on Monday with a report from the Australian Bureau of Statistics (ABS) on new car sales. The ABS recasts the industry data on new car sales, converting the original data into seasonally adjusted and trend estimates.

The Federal Chamber of Automotive Industries has already reported that 81,656 new vehicles were sold in April, up 1.2% on a year ago. Interestingly we may be seeing a mixed picture on consumer spending but the same cannot be said for sales of sports utility vehicles (or four-wheel drive vehicles). It is clear that demand for SUVs remains the main driver of the new vehicle market. In fact SUV sales are up 17% on a year ago and now one in three new vehicles sold in Australia is a SUV.

Also on Monday, Reserve Bank Deputy Governor Lowe delivers a morning address at the Corporate Finance Forum in Sydney.

On Tuesday the Reserve Bank releases minutes of the last Board meeting. This was the meeting held a fortnight ago that decided on another interest rate cut. The question is whether there is anything new to learn about the decision.

The Reserve Bank released a statement after the rate decision and the quarterly Statement on Monetary Policy was issued last Friday. However investors will be hoping that policymakers provide more context on future interest rate movements – especially given that the Reserve Bank refrained from explicitly providing forward guidance on interest rates following the May rate cut.

Also on Tuesday Roy Morgan and ANZ release the weekly consumer sentiment survey. The recent lift in the Aussie dollar has supported sentiment, however the focus will shift to household views on the economic landscape in the context of the Federal Budget.

Similarly on Wednesday Westpac and the Melbourne Institute release the survey of consumer sentiment for May.

Since the 2014 Federal Budget consumer sentiment has been in ‘pessimistic’ territory – below a reading of 100 – for 11 out of the past 12 months. But given the 2015 Federal Budget contained few ‘nasties’, the hope is that it provided some comfort for consumers.

Also issued on Wednesday is the latest survey of skilled job vacancies from the Department of Employment and Workplace Relations. Anything that could provide further clarity about the recent improvements in the job market was headed would be warmly viewed by investors and analysts.

The Reserve Bank will close out the week in Australia with a couple of further speeches. On Wednesday Deputy Governor Phillip Lowe will moderate a panel discussion at The Future of International Governance and the G20 conference. On Thursday Reserve Bank Assistant Governor Malcom Edey will deliver a morning address at the 20th annual Cards & Payments conference in Melbourne.

Federal Reserve minutes and housing indicators in focus

Turning attention to the US, the week kicks off on Monday with the release of the National Association of Home Builders index for May to be released. Economists expect the NAHB index to hold steady at 56.

On Tuesday, data on housing starts will be issued alongside building permits for April. The number of home starts rose by 2% in March and given the improvement in weather conditions, economists tip a substantial lift in starts of around 9-10% in April. Building starts are expected to have risen by 3% in April. Also on Tuesday, Federal Reserve chair Janet Yellen fronts the Financial Stability Oversight Council.

On Wednesday minutes of the last Federal Reserve meeting are released and investors will look for clues on the timing of rate hikes. There will be particular focus on the Fed’s views when it comes to the labour market. We expect the Fed to look to raise interest rates in the September quarter.

On Thursday, no less than five separate reports are released. The leading index is issued together with the influential Philadelphia Federal Reserve (Philly Fed) survey, existing home sales, Kansas City Federal Reserve index, and weekly data on jobless claims. In terms of data on existing home sales, economists expect that sales rose by 1.2% in April. Across all other indicators economists expect improvement, potentially underpinning investor sentiment on the broader economy.

On Friday the Markit ‘flash’ reading on the manufacturing purchasing manager’s index (PMI) for May is released alongside the monthly inflation reading (consumer prices). Core prices (excludes food and energy) are up just 1.8% over the year. Also on Friday, Markit issues ‘flash’ PMIs for China, France, Germany and the Eurozone.

Sharemarket, interest rates, currencies & commodities

The good news is that the global economy is doing better with the US jobless rate at 7-year lows and activity data in the Euro zone showing signs of improvement.

The bad news is that the stronger growth has led to a lift in global bond yields, with the impact reverberating across other markets, such as equities.

In Australia, 10-year bond yields are back near 3%, a gain of around 75 basis points from the all-time lows on 14 April. Over the same period, US 10-year bond yields have lifted by around 40 basis points while German equivalent yields have lifted by around 60 basis points.

Upcoming economic and financial market events

Australia

Monday 18 May: New motor vehicle sales (April). ABS provides seasonally adjusted data.

Monday 18 May: Reserve Bank Speech. Speech by Deputy Governor Phillip Lowe.

Tuesday 19 May: Weekly consumer confidence. Higher Aussie dollar is propping up sentiment.

Tuesday 19 May: RBA Board minutes (May). Minutes of the 5 May meeting that cut rates to 2%.

Wednesday 20 May: Westpac consumer sentiment (May). Focus will be on consumer reaction to the budget.

Overseas

Monday 18 May: US NAHB housing market index (May). Expected steady near 56.

Tuesday 19 May: US Housing Starts (April). Expected to have lifted by around 9-10%.

Tuesday 19 May: US Building Permits (April). A solid 3% gain is tipped

Wednesday 20 May: US FOMC Minutes are released. Minutes of the April 28, 29 meeting.

Thursday 21 May: US Philadelphia Fed outlook (May). Influential regional survey.

Thursday 21 May: US Leading index (April). A 0.3% increase is expected.

Thursday 21 May: US Existing home sales (April). A 1.2% increase is expected.

Friday 22 May: US Consumer prices (April). The core rate is tipped to rise 0.2%.

Friday 22 May: ‘Flash’ manufacturing gauges. Covers US, Europe and China.

Published: Monday, May 18, 2015

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