Investor Signposts: May 21, 2018

Australia: Quiet times

• In Australia over the coming week, the economic diary is sparsely populated. Main interest will be in a speech from the Reserve Bank Governor on Wednesday.
• The week kicks off on Tuesday with the weekly gauge of consumer confidence to be issued by ANZ and Roy Morgan. Consumers have been more upbeat in recent weeks with sentiment underpinned by a relatively stable global environment, higher share prices and positive economic data. The main negatives have been a softer currency and higher petrol prices.
• On Wednesday the Reserve Bank Governor, Philip Lowe, delivers a speech at 6pm in Sydney at the Australia-China Relations Institute.
• Also on Wednesday the Australian Bureau of Statistics (ABS) releases the publication Construction work done. Data is provided on work done by residential and commercial sectors in both nominal and real (inflation-adjusted) terms.
• The data on residential building is an input to the calculation of economic growth for the March quarter. The economic growth data will be released on June 6.
• On Thursday the Reserve Bank Assistant Governor covering the financial system will be delivering a speech at the at the De Nederlandsche Bank Housing Market seminar in Amsterdam.
• Also on Thursday the ABS releases more detailed estimates on the job market for April. Main interest will be data covering regional areas as well as demographic groupings.
• And on Friday, the ABS releases the publication Australian Industry 2016/17. The data includes estimates of employment, sales, expenses, wages and profits with the estimates going back a decade.

Overseas: US housing in focus

• In the coming week, there are several indicators covering the US housing market. The other point of interest is the minutes of the last Federal Reserve meeting.
• The week kicks off on Monday when the Chicago Federal Reserve releases its national activity index. In March the index eased from a solid reading of 0.98 to 0.10. But averaging out the last three months gives a more accurate measure of 0.27, suggesting the economy remains in good shape.
• The regular weekly data on US chain store sales will also be issued on Tuesday while mortgage finance data is on Wednesday and new claims for unemployment insurance on Thursday.
• On Wednesday in the US, the Federal Reserve releases minutes of the last meeting. Data on new home sales is also released while the Markit organisation releases its 'flash' or early results on activity in the manufacturing and services sectors. The Markit results cover not just the US but also Germany, France, the Eurozone, and Japan.
• Investors will dissect the Fed minutes carefully, but it will take something exceptional to dissuade investors from the view that the Fed will lift rates in June.
• New home sales rose by 4 per cent to a seasonally adjusted annual rate of 694,000 in March – a 4-month high. Sales out-paced expectations in March so some retracement is possible in April.
• On Thursday in the US data on existing home sales for April will be released with home prices for March. Existing home sales rose by 1.1 per cent to a 5.6 million annual rate in March. Economists expect that sales may have flattened at a 5.6 million annual rate in April.
• Home prices rose 0.6 per cent in February to stand 7.2 per cent higher than a year ago. Prices may have risen by another solid 0.6 per cent in March.
• On Friday a key measure of business investment – durable goods orders – will be released for April. Economists expect some easing in spending with orders down 1.4 per cent after a 2.6 per cent lift in March. The final May reading on consumer sentiment for May is also issued on Friday.

Financial markets:

• Despite a modest uptick over February and March, volatility has remained low on the Australian share market over the past year. In both February and March there were three days where the ASX 200 index rose or fell by more than 1 per cent. In the combined six months prior, there were three days where the ASX 200 rose or fell by more than 1 per cent. So there was a lift in volatility, but it needs to be kept in context. Over the past decade, the ASX 200 has risen or fallen by 1 per cent a day on average by just over five times a month.
• Over the past year, there were 22 days where the ASX 200 rose or fell by more than 1 per cent. Apart from the year to January 2018 (21 days), that was the least volatile period for the share market in 12 years.
• The important point is that the ASX 200 share index has tended to lift as volatility recedes. The inverse relationship between the volatility of the ASX 200 index and the index itself is clear between 2011-2013 as well as 2015-2017.
• Since daily volatility peaked in February 2016, the ASX 200 index has lifted by 25 per cent.

Craig James is the Chief Economist at CommSec.