AU Data
- Monday 09.30 Manufacturing Purchasing Managers Index previous 52.7
- Monday 10.30 TD Securities/ Melbourne Institute Inflation Gauge previous 0.5% m/m
- Monday 11.30 Retail Sales previous 0.5% m/m
- Monday 16.30 Index of Commodity Prices previous 20.7% y/y
- Tuesday 11.30 Building Approvals previous -5.7% m/m
- Tuesday 11.30 Current Account previous -19.4b
- Tuesday RBA Rate Decision current 7.25%
- Wednesday 09.30 Services PMI previous 47.3
- Wednesday 11.30 GDP previous 0.6% q/q
- Thursday 11.30 Trade Balance previous -2.7b
- Friday 09.30 Construction PMI previous 42.6
Last week saw evidence that the Australian economy is reacting to interest rates at 12 year highs. The Westpac-Melbourne Institute Leading Index of economic activity growth rate, which indicates the likely pace of Australian economic activity three to nine months into the future, fell to an annualized rate of 3.3% in March from 3.6% in February. This is the lowest level since March 2004 and is well below the trend growth rate of 4.4%. Private New Capital Expenditure also fell 2.5% in the Q1 on a seasonally adjusted basis and was well below the consensus forecast of +3.0%. Private Sector Borrowing (+0.4% in April) added to the downbeat mood as both businesses and consumers feel the pressure of recent interest rate hikes. This week offers plenty of event risk that has potential to move the market sharply with the release of Retail Sales, GDP, Trade Balance and TD/MI Inflation Gauge, but most attention will be on the RBA Rate Decision on Tuesday to see if the Board can remain patient in the face of growing global inflationary pressure.
NZ Data
- Wednesday 13.00 ANZ Commodity Price Index previous -0.3%
- Thursday 07.00 Monetary Policy Statement
- Thursday 07.00 Official Cash Rate Decision current 8.25%
Last week saw Business Confidence (-49.7 from -54.8) improve slightly in May but inflation expectations for the year ahead worsened from 3.29% to 3.44%. Business and consumer confidence (and disposable income) continue to be hit hard by increasing oil and petrol prices and a housing market slump that is spreading to commercial construction, but inflation remains persistently high thus allowing the RBNZ little room to reduce interest rates at this week’s meeting. At this stage the RBNZ will be very wary of moving rates down too early and risk an embarrassing monetary policy u-turn later in the year; the Monetary Policy Statement will be scrutinised carefully for any reasons to adjust the consensus view that rates will be eased from September this year and the likely pace of reductions over the next 12 months.
US Data
- Monday 24.00 ISM Manufacturing Index previous 48.6
- Monday 24.00 ISM Manufacturing Prices previous 84.5
- Monday 24.00 Construction Spending previous -1.1%m/m
- Tuesday 24.00 Factory Orders previous 1.3% m/m
- Wednesday 21.30 Challenger Job Cuts previous 27.4% y/y
- Wednesday 22.15 ADP Non-farm Employment Change previous 10k
- Wednesday 22.30 Non-farm Productivity previous 2.2%q/q
- Wednesday 22.30 Unit Labour Costs previous 2.2%
- Friday 22.30 Non-farm Employment Change previous -20k
- Friday 22.30 Unemployment Rate previous 5.0%
- Friday 22.30 Average Hourly Earnings previous 0.1% m/m
- Friday 24.00 Wholesale Inventories previous -0.1% m/m
Last week saw continued signs of some stability returning to the US economy but little to suggest that this slowdown, if not recession, will be short. U.S. New Home Sales in April rose for the first time in five months recording a monthly increase of 3.3% to 526k. However, the real surprise was the huge downward revision in the March reading to 509k, previously reported as 526k. The Conference Board's Consumer Confidence index for May fell more than expected to 57.2 from 62.8 led by a 7.5-point decline in the present situation component. Inflation expectations jumped to a record high of 7.7% and are a cause for alarm as those expectations could filter through into consumer prices later this year. Q1 GDP was revised up from 0.6% to 0.9%, but the major contributors to GDP, consumers, remained subdued and boosted spending at the slowest pace since the last recession in 2001. The core Personal Consumption Expenditures price index (important to Federal Reserve policy making because it strips out volatile food and energy prices) was revised 0.1% lower to 2.1%, compared with market expectation of an unchanged 2.2% reading. Overall PCE inflation was unrevised at 3.5%, slightly lower than the 3.9% pace in the prior quarter. Finally, two Federal Reserve policy-makers, Messrs Fisher and Stern, warned that interest hikes could be needed sooner rather than later to curb inflation even as the US struggles with a weak economy. This confirmed markets expectations that the FOMC’s aggressive rate cutting cycle was over and rate increases could start later this year.
JPN Data
- Monday 11.30 Average Cash Earnings previous 1.5% y/y
- Tuesday 09.50 Monetary Base previous -2.8% y/y
- Wednesday 09.50 Capital Spending previous -7.7% q/q
Last week saw Retail Sales in Japan rise 0.1% to 11.19 trillion yen in April from a year earlier, helped by increased spending on fuel due to higher gasoline prices combined with higher spending on auto purchases, but the April reading was the worst since July 2007, when sales fell 2.3%. Retail sales are likely to stay flat or rise marginally as consumer sentiment is weakening, while prices of daily products are rising. The latest data showed Japanese Consumer Confidence falling to a fresh five-year low in April due to worries about a weakening economy, employment and wage conditions, and rising consumer prices. Unemployment hit a 7 month high as Industrial Output fell 0.3% in June signalling further problems for the economy as inflation is seen heading for another decade high. Annual inflation slowed to 0.9% in April, due to a short-lived cut in gasoline tax, but this is likely to bounce back to 1.4% in May’s figures.
Interest rate outlook
| Country |
Current rate |
Last change |
Date of change |
Next meeting |
| AUS (RBA) |
7.25% |
+25bps |
04/03/08 |
3rd June |
| NZ (RBNZ) |
8.25% |
+25bps |
26/07/07 |
5th June |
| US (FED) |
2.00% |
-25bps |
30/04/08 |
25th June |
| JPN (BOJ) |
0.50% |
+25bps |
21/02/07 |
13th June |