Kohler's Week: Special corporate issue – CBA, Fed Centres, Transurban, Telstra, Rio Tinto, Slater & Gordon

Last Night

Dow Jones, up ~0.2 per cent
S&P 500, up ~0.3 per cent
Nasdaq, up ~0.6 per cent
Aust dollar, US77.7c


It’s really not ideal that Australian investors looking for income have to buy shares in a bank at more than $90 a pop. Yes, Commonwealth Bank’s yield of 4.55 per cent (6.5 per cent yield grossed up for franking) is still good, but better still has been the capital growth of 24 per cent per annum over the past three and a half years, for a total return of about 30 per cent per annum. Magnificent. 

But the past three years have been a pretty unusual moment in time. Earnings per share over this period have increased at a compound rate of less than 8 per cent, so as the share price rose by 24 per cent compound, the PE ratio went from 10 to 20. In other words the increase in share price has been due to something other than the business’s admittedly solid performance.

That something is interest rates, of course. The five-year bond rate has fallen from 5 per cent to 2 per cent. At the same time, CBA’s pre-tax yield has fallen from 6.6 per cent to 4.6 per cent, or 9.4 per cent to 6.4 per cent on a grossed-up basis, and that has been the focus of investors. CBA is an equity, not a bond, but it is such a wonderfully managed organisation with a succession of excellent CEOs and a fine board, that the distinction between this particular equity and a bond has not seemed all that relevant.

But that’s not correct: equities carry risks, and there are now three risks with CBA (and all banks for that matter):

1. Interest rates will eventually rise. This is a risk common to bonds, and looks a fair way off, admittedly. The problem is that bond markets tend to move early, unexpectedly and go hard when they do. It seems likely that global bonds are in the greatest bubble of all time, which will crack at some point. And unlike the US Federal Reserve, nervous bond investors won’t wait to see the whites of inflation’s eyes before pushing yields up, and prices down – a long way down.

2. Unemployment. It’s now been 24 years without a recession in Australia. At some point there will be one, and in fact the inverse yield curve is telling us there is one around the corner. As I’ve said before, an inverse yield curve (where long-term rates are lower than short-term rates) doesn’t always precede a recession, but recessions are always preceded by an inverse yield curve. CEO Ian Narev kind of warned about this risk this week when he implicitly criticised the government for being in a total mess (although he didn’t use those exact words) and depressing business confidence. 

3. Technology and competition. There is heaps of disruption coming at banking, but perhaps the least understood is peer-to-peer lending. The name disguises what it really is: it’s not individuals lending to other individuals via some kind of hippie platform, which would probably never be a threat to banks. About 80 per cent, and rising, of the Lending Club’s (the leading peer-to-peer lender) money comes from wholesale sources – hedge funds and asset managers. It’s basically the rebirth of sub-prime lending in a better organised and less risky way than the collateralised debt obligation etc that brought down the financial system in 2008. And in many ways the most important part of what’s happening is the data. Modern lenders like Lending Club have access to hundreds of data sources on their borrowers, including from outfits like Yodlee, which has become the world’s largest data wholesaler. The result is that their impaired loans are lower than the banks because their credit checking is better – banks are still stuck in the old days of getting one or two pieces of data from the credit bureau on a customer’s credit history and rating. These days lenders can know everything about a borrower, including what they eat for breakfast, within minutes. Also they’re moving to daily repayments, so you find out if a customer is in trouble very quickly. 

In general, banking is undergoing colossal shifts, with equally large risks. There’s little doubt that CBA is the best run Australian bank and its technology is the best as well (for example, its customers can get cash from an ATM without a card – just by using their phone). But before paying 20 times earnings per share for any stock in this market, and especially a bank, you need to understand and form a view about each of the three points above. You might decide to go ahead anyway because the threats are small, can be handled and are a long way off. But it’s worth understanding them.

Federation Centres   

When I was a teenager, I used to go bowling every week at Chaddie, as we called it. In those days the Chadstone shopping centre in Melbourne just consisted of Myers (Myer Emporium had built the centre and still owned the whole thing), the bowling alley and a few other shops clustered around Myers. I was eight years old when the place opened, and it was still exciting five years later when I was catching the bus there every Saturday to go bowling.

Fifty years later, Chaddie is still an exciting place, getting bigger and better all the time. Thanks to the vision of John Gandel, Chadstone is one of the top 10 shopping centres in the world, and easily the biggest and best in Australia. It’s almost a suburb of its own. I still love going there, not for the bowling, and Myers is just one of hundreds of shops, restaurants and cinemas. 

Now Federations Centres, the old Centro Group, is taking over Novion, the half-owner of Chadstone, as well as Emporium in LaTrobe St in Melbourne’s CBD (another excellent shopping centre) and a range of other regional shopping centres, to create the second-largest shopping centre landlord in the nation. Bob Gottliebsen, Steve Bartholomeusz and I interviewed the CEO of Federation, Steven Sewell, during the week and you can read the transcript and watch the interview here.

To cut to the chase: this is going to be a very powerful company. I have not done the analytical work, so don’t take this as a buy recommendation, but a portfolio of malls that includes Chaddie, Emporium plus a big range of smaller centres around the country will have significant market power and economies of scale. Sewell is an impressive guy and the legendary John Gandel will be a big shareholder in the merged group, and will therefore be keeping an eye on him. The yield (unfranked) is 5.6 per cent and the trailing PE is less than 10.

Retail is also being disrupted by the internet, but I don’t think online shopping will empty out the promenades inside Chaddie or Emporium in a hurry, or the regional centres that are the social hubs of towns around the country. Strip shopping centres are in trouble, that’s for sure, but the big malls seem to be OK. I might be wrong, but it seems to me banks are in more trouble from digital disruption than shopping malls.

By the way, a big reason for doing the transaction with Novion is that it gives Federation the opportunity to reset all its debt – that’s worth about half the synergy benefits from the deal. The bank loan contracts provide that when there’s a big transaction, the loans have to be repaid and start again. Yes please, said Steven Sewell: the old average interest rate was around 6 per cent; the new one is 4.1 per cent, and the difference easily covers the hefty bank fees.


Transurban is also getting a big benefit from lower interest rates, although if it wants to repay any loans early there are very big fees attached. But CEO Scott Charlton told me this week he can cut interest rates from 6 per cent to 5 per cent (I don’t see why toll roads have to pay higher rates than shopping centres, but that’s another story).

Scott is this week’s special CEO interview for you – you can watch it and read the transcript here.

Here’s the thing about Transurban: it gets traffic growth from population growth of 3 per cent per annum; it gets CPI increases in its tolls of 3-4 per cent (which is more than the actual CPI); it’s getting margin improvements each year of about 1 per cent; and it’s getting another 2 per cent revenue growth from adding lanes to existing roads. That adds up to 10 per cent annual compound revenue growth, which is what it has reported for the past decade.

The next few years could be more than that as it gets the profit margins on its newly acquired Brisbane roads and the underperforming Sydney ones up. According to this week’s half yearly statement, the profit margin on Citylink is now 93.4 per cent, an increase of 3.4 per cent in 12 months. On the M5 in Sydney it’s 95.1 per cent, up 1.1 per cent. Think about that – it costs about one twentieth of revenue to run these roads AND they’re getting locked in price rises beyond CPI – unbelievable. The margin on the Cross City Tunnel is 58.2 per cent and on CLEM7 in Brisbane it’s 48.5 per cent, so there’s plenty of room for improvement there.


It was another good result from Telstra this week, but unlike Ian Narev at CBA, David Thodey and the team at Telstra seem to be keen to change their company’s image as a dividend machine and become more known as a growth company. In our interview with CFO Andy Penn this week he denied this, but they are definitely restraining the payout ratio and investing in growth – specifically mobile spectrum and network technology, and what they see as the future of the business – NAS, or network application and services.

Mobile is about half the business now and although there’s a lot of money and effort going into things like eHealth, cloud, Autohome and so on, mobile needs to keep growing for Telstra to actually be a growth business as opposed to just being a yield machine at the wrong point in history (when yields are falling).

So it seems to me the biggest risk for Telstra is that Optus and Vodafone are no longer poorly run and have got their acts together. Bill Morrow has gone from Vodafone to run the NBN, it’s true, but he fixed the network and set the place up for his successor, Inaki Berroeta, the Spanish-born Vodafone guy who had been managing their business in Romania and Malta. And the new guy at Singapore-owned Optus, Allen Lew, is also starting to give Telstra some serious competition.

Sol Trujillo gave Telstra a 10-year advantage when he rebuilt the mobile network – it was the right investment at the right time, and without it, along with the shocking management of both Optus and Vodafone for most of those 10 years, Telstra would be in a parlous state indeed with the decline of its fixed line business and the development of the NBN. It’s coming up for a decade since Trujillo was appointed CEO of Telstra and its mobile advantage is beginning to fade as its competitors get organised.

The challenge for David Thodey and his successor (Thodey will have been CEO for six years in May) will be competition – in mobile and broadband via the NBN. He is looking hard for new businesses that Telstra can dominate, such as eHealth, but they will be hard to find, and lower margin anyway.

Rio Tinto

Not everyone is looking to refinance debt to get the rate down – Rio Tinto has, amazingly, repaid $10 billion worth of debt by cutting back on capital expenditure and slashing operating costs.

I used to meet the former CEO Tom Albanese once a year for lunch, and I thought he was a pretty sensible executive doing a decent job. Now I think he must have been an idiot. How often does this happen? Someone who presents as pretty good gets replaced and the new person runs the business on a fraction of the costs and improves it at the same time. That’s what has happened at Rio. Sam Walsh and Chris Lynch are managers for the times and may not be the right people for when the market turns and it’s time to grow, but to have lifted profit 78 per cent when the iron ore price halved is hard to overpraise. 

So they can do a $2 billion buyback without borrowing – it could have been $3 billion.

Slater and Gordon

One of my favourite mid-caps is the law firm Slater and Gordon, which is in the process of becoming predominately a UK business. That should happen sometime next year, but the important thing to note out of this week’s half-yearly results is that the UK operations’ margins are now the same as those in Australia. That indicates that the integration of the UK acquisitions is going well and the business there is at scale. They have now moved into new premises in Manchester, where there are 700 staff, and the implementation of a single case management system is done. The next phase involves integrating the acquisitions of Fentons and Pannone, which should be done by March this year, and this week CEO Andrew Grech announced two more takeovers – a consumer law firm in North Wales and North West England called Walker Smith Way, and another consumer specialist firm in Wales called Leo Abse and Cohen. 

The main black cloud is in Queensland, where S&G is having problems. Revenue fell 3 per cent in the latest period and the firm seems to be losing market share to Maurice Blackburn, partly because it rebranded the local subsidiary from Trilby Misso, a strong local brand, to Slater and Gordon. Also Queensland work cover claims have had a threshold test imposed, which is apparently affecting volumes.

The other wildcard with S&G is that it has entered an exclusive due diligence arrangement with Quindell plc, a big UK business that does, among other things, insurance outsourcing and legal services. The company seems to be in trouble and investors are heading for the exits, leading to a 20 per cent drop in its share price this week. It’s not entirely clear what’s going on here, but I presume Grech – who is in the UK at the moment – is looking at acquiring its insurance legal assets. If it happens, it would be a big transaction and would probably require new equity.


There was optimism and apprehension from European economic data for the December quarter, out this morning. Europe as a whole grew 0.3 per cent in the quarter – more than expected and an acceleration from previous quarters.

But it was all about Germany again: its economy expanded 0.7 per cent, while France grew 0.1 per cent, Italy was zero and Greece went back into contraction – 0.2 per cent – after expanding for three successive quarters. The German share market responded by closing at a record high, and earlier in the day the DAX broke through 11,000 for the first time. The Greek market jumped 5.6 per cent and the Russian index went up 6 per cent on growing optimism that sanctions might be lifted.

In general it seems Doug Turek’s “melt up” is on. Australia’s market was up more than 2 per cent yesterday, along with Brazil’s, which surged 2.5 per cent, while virtually every significant market in the world rose in the past 24 hours apart from Tokyo, and it had gone up 2 per cent the day before.

The ASX 200 is now up 8.6 per cent for the year so far and quite a few around the world have bounded out of the blocks, with rises of more than 10 per cent since January 1 – such as Moscow (15 per cent), Helsinki (12 per cent), Frankfurt (11.8 per cent), Paris (11.4 per cent) and Buenos Aires (11.4 per cent). Who would have chosen the Russian, Finnish and French markets to be leading the way in a booming start to the year? Certainly not me. Crude oil prices are also firmer this morning, as are iron ore and copper.

The source of all this bullishness this morning appears to be the ceasefire that came out of the meeting in Minsk between Mr Putin, Mr Hollande, Mr Poroshenko and Frau Merkel. The agreement calls for a full ceasefire to begin at midnight tomorrow and for both sides to withdraw heavy weapons within 14 days. It also calls for the pull-out of foreign forces in eastern Ukraine and for the Ukraine constitution to be changed to give special self-governing status to parts of the Donetsk and Luhansk provinces.

As Stratfor wrote yesterday, it now all depends on the implementation. In some ways the deal is the same as one signed in early September and which didn’t work, so there is understandable scepticism that this one will hold as well. Not, it should be noted, on the share market, which seems to be fully on board this time. There was a 10 per cent global correction in September last year – for reasons other than Ukraine. At that point, it became clear that the Syriza party in Greece was going to win the election there.

Five months later and Syriza did, indeed, win and is now grappling with what used to be called “the troika” -- the ECB, the EU and the IMF. This is a continuing source of volatility for markets, but I remain convinced that a deal will be done a la Minsk. And then, as with Ukraine, the question will be: will the ceasefire hold?

Plenty for markets to worry about, as always, but just not this week.

The long, steady march of the law 

Almost a year ago, while visiting my dad in hospital, Mr Stupid here left his Mac laptop on top of the ticket machine in the car park while I fished in my wallet for money. Half an hour later I raced back, knowing exactly what I had done with it, but it had gone. I contacted the car park management and of course it had not been handed in, but I did establish that they had both a closed circuit video picture of the person who took it, plus his/her credit card details. These could only be given to the police, the guy said, and recommended that that should be my next stop.

So I filed a report and told the cops about the information of which the car park was in possession: “An easy collar,” I urged. “You won’t get an easier one this year. Just collect the picture and credit card details, find out the address from the bank, go around and say ‘You’re nicked, sunshine’, or whatever it is you say these days, and retrieve the item in question from the perp before hauling him/her off to the clink for a good long stretch. Ha ha.” 

Silence for a month. Then a nice young constable rang out of the blue to say they had tracked the miscreant down to Bendigo and that a local officer would be attending the address momentarily.

More silence for another month. Another call from the same constable. Turns out the offender had fled to Sydney and the case had been handed to the NSW Police. Oh well, I thought, that’s the end of that. Time to buy another computer: the NSW cops have got bigger fish to fry than the opportunistic removal of my Macbook Pro from on top of the car park ticket machine at the Alfred Hospital in Melbourne.

And sure enough, there was nothing for nine months and I forgot all about it. Got on with life on my new computer (on which I am writing this today). Then on Monday this week I got a rather excited call from the same young constable to tell me that my computer had been HANDED IN to the Echuca Police Station! 

Can You Believe It! 

It seems that the Victorian and NSW Police have, indeed, been relentlessly pursuing the (female) offender and she is now in custody and the computer has been retrieved. It is now wending a leisurely path from Echuca to Melbourne and apparently I will soon get another call telling me to come and get it.

I feel a bit sorry for the woman though. She was probably feeling miserable that day, having just visited a terminally ill relative or something, and was cheered up by the magical appearance of a nice looking 13-inch Macbook Pro. “You little ripper,” she would have thought. “The day is not a dead loss after all.”

And now, nearly a year later, she’s had to give the thing back, perhaps harassed to distraction by the long, slow moving, arm of the law. 

Readings & Viewings

Video of the Week: This is pretty incredible – Google’s robot dog. It’s the future of something, but I’m not sure what.

Excellent piece by Oliver Hartwich on why Greece and Germany cannot – ever – agree on anything.

Ambrose Evans-Pritchard: Germany faces an impossible choice over Greece.

Europe may fall.

Banking – where the science of big data has not been appreciated (apropos my comments on CBA above).

On inequality – 250 years is not a long enough term to look at it. Try 15,000 years.

Central banks have been buying a lot of gold lately.

"Terrorism is a very unattractive military strategy, because it leaves all the important decisions in the hands of the enemy.” But what if they acquire nuclear weapons?

Very interesting article on SOE reform in China.

Why Japan has a big stake in Tony Abbott’s leadership.

Council on Foreign Relations re Tony Abbott.

… and the item on that website in December that predicted the challenge.

Barrie Cassidy: Joe Hockey's tenure as Treasurer seems intrinsically linked with that of Tony Abbott, but when it comes to the upcoming budget the pair don't seem to be singing from the same song sheet.

Martine Rothblatt and artificial mind clones.

Annie Lennox and Hozier at the Grammy’s – great version of "I put a spell on you” (after a while).

This is a must read for those, like me, who are sick to death of Channel Nine’s inane cricket commentary.

Fascinating read about people getting flamed on Twitter: “How one stupid tweet blew up Justine Sacco’s life.”

Pope Francis: not having children is selfish. (But it sure is cheaper, your holiness)

Jon Stewart of the Daily Show announced this week that he’s quitting. He’s a selection of his finest moments.

How Jon Stewart changed journalism.

Um, sex toy injuries surged after 50 Shades of Grey was published.

"I’m trying to fix my legacy. It’s been butchered.” – Joni Mitchell. Hoo boy, she certainly is one tough cookie.

My piece in Business Spectator this week about the company that produces Cobram Estate olive oil. It’s an unlisted public company, and you can buy shares – occasionally.

Two of the judges involved in the Bali nine case have been sacked for corruption.

And as Indonesia prepares to execute Andrew Chan and Myuran Sukumaran, it emerges that 36 of the Bali bombing terrorists have been freed.

Mohamed A. El-Erian: Beware the bubble in liquidity.

Will Saudi Arabia keep locking people up for having an opinion?

When it comes to sex scandals, leave it to the French.

How to get a better deal at hotels.

Hey this could be big: apparently it’s now possible to convert solar energy into liquid fuel.

What Apple just did in solar is a really big deal, according to this video on Bloomberg.

Glenn Stevens’ opening statement to the House of Reps committee on economics yesterday. Nothing new in it, but at least he talks in words of one or two syllables for the lollies.

It’s Valentine’s Day, which is when a saint (or maybe more than one) named Valentine or Valentinum were martyred. For some reason it is turned into Christmas Day for florists. But, hey, good luck to retailers who manage to get a Day for their products, such as Easter for chocolate vendors and Mothers Day for hand cream shops. There aren’t many birthdays today (they mostly come, ahem, nine months later) but one of them is Christopher Latham Sholes, who invented the typewriter and has been forever immortalised by the QWERTY keyboard, which I spend most of my life banging. He was born on St Valentine’s Day 1819 and died three days after his 71st birthday. 

Yikes! Video of a pole vaulter, using a GroPro camera on her head and pole.

Last week

By Shane Oliver, AMP

Shares generally saw good gains over the last week thanks to a combination of optimism regarding Greece, a new Ukraine ceasefire deal, more global monetary easing (the latest being Sweden) and good earnings results including in Australia. The strong start to the earnings reporting season in Australia combined with expectations for more interest rates cuts have helped push Australian shares up 8.5 per cent year to date to a new post GFC high. Reflecting the risk on tone bond yields were generally flat to up a little bit, but commodity prices including oil were a little softer. The Australian dollar fell slightly partly in response to a weak Australian jobs report.

There are some signs of a compromise regarding Greece. Sure Wednesday’s Eurogroup meeting did not resolve the standoff, but I can’t see why anyone ever really expected that it would as it will take time. However, it is worth noting that on being asked whether a Grexit from the euro is on the table the Greek finance minister replied “of course not” and German Chancellor Merkel has indicated a willingness to compromise. Our base case remains that a deal will be reached and that even if Greece doesn’t agree and heads for a Grexit, the risk to the rest of the eurozone is manageable as the peripheral countries are now in better shape and defence mechanisms are stronger. In terms of the latter it’s noteworthy that Italian and Spanish bond yields remain around record lows.

Time will tell whether the latest Ukraine ceasefire deal sticks or not. But Russian shares are looking interesting. While the Russian recession is still deepening the 60 per cent plunge in the value of Russian share shares since 2011 has left them trading on a PE of just 4.4 times. Meanwhile they look to have been building a base since a collapse into mid December last year and a near 50 per cent fall in the value of the Ruble will help make the Russian economy more competitive and has almost completely offset the fall in the oil price over the same period.

It’s early days in the Australian December half profit reporting season with just less than 20 per cent of companies reporting to date and there is also a tendency for the good results to come out early, but so far so good. Sixty per cent of results to date have beaten expectations against a norm of 45 per cent, 76 per cent have seen profits rise from a year ago, 54 per cent have seen their share price outperform the day results were released and 73 per cent have increased their dividends. Key themes have been weakness amongst resources shares (on falling commodity prices) and mining services companies (on falling mining investment), continued strength for the banks, ongoing cost control and solid growth in dividends.

Major global economic events and implications

US data was a bit messy. Job openings rose to a new high in December, but small business optimism dipped and January retail sales were soft. Given the high levels of consumer confidence, low gasoline prices and the strength in employment and real income growth it’s hard to see the softness in retail sales being sustained. Nevertheless, it is another indicator pointing to a delay in the Fed’s first rate hike.

The tone to US December quarter earnings results has remained solid over the last week. We are now 80 per cent done and 77 per cent of companies have beaten on earnings, 56 per cent have beaten on sales but earnings growth for the quarter is still running at a relatively subdued 5 per cent.

Japanese data was generally good with stronger readings for consumer confidence, the Eco Watchers’ outlook survey and machinery orders and a sharp fall in bankruptcies.

Chinese data reinforced the impression of a soft start to the year with falls in January exports and imports, a sharp fall in inflation and deeper producer price deflation. While the export and import weakness may owe to distortions caused by the variable timing of the Chinese New Year, the collapse in inflation highlights the need for more monetary easing in China.

We see the PBOC’s one year benchmark lending rate falling to around 4.5 per cent this year (from 5.6 per cent).

Indian inflation was less than expected in January and December GDP growth was reported at a stronger than expected 7.5 per cent year on year, which was stronger than China’s.

However, there is some uncertainty about the latest GDP data as it’s based on a new data approach.

Australian economic events and implications

Australian economic data was a mixed bag, with rising unemployment and subdued business conditions and confidence but strength in housing finance and house prices and a welcome rise in consumer confidence but only to levels well below last year’s highs. While the rise in consumer confidence indicates that rate cuts will get traction the ongoing rising trend in unemployment is consistent with more interest rate cuts ahead.

RBA Governor Glenn Steven’s Parliamentary Committee testimony left the impression that the RBA has a clear easing bias: inflation is likely to remain low; growth is likely to remain sub trend for longer even assuming another cut in interest rates; home price strength is no barrier to rate cuts as it is concentrated in Sydney and APRA is adopting a tougher regulatory approach; and the Australian dollar is expected to fall further. Our view remains that the RBA will cut rates by another 0.25 per cent in the next month or so. However, since the RBA’s downwardly revised growth forecasts already allow for one more rate cut, there is a high chance the RBA will end up going further and cut the cash rate below 2 per cent to provide confidence that growth will get back above trend next year.

Next Week 

By Craig James, Commsec

Quiet week for Australian economic data

The cupboard is all but empty. In the coming week there are only three economic data releases of note in Australia in addition to the release of minutes from the last Reserve Bank Board meeting.

The week kicks off on Monday when the Bureau of Statistics recasts the industry data on new motor vehicle sales. The Federal Chamber of Automotive Industries released the raw January figures of auto sales on February 4 and the ABS recasts the raw data in seasonally adjusted and trend terms.

FCAI reported that new motor vehicle sales totalled 82,116 in January, down just 0.2 per cent on a year ago.

Passenger vehicles fell 4.3 per cent in January on a year earlier, light commercial vehicles dropped 0.3 per cent, heavy commercial vehicles fell 0.3 per cent but sports utility vehicles – SUVs or four-wheel drive (4WD) – rose by 6.9 per cent over the year to record highs for a January month. Small and medium SUVs showed significant growth, up 17.9 per cent and 9.5 per cent respectively.

Across buyer categories in January, business purchases were down 0.5 per cent over the year with government sales down by 4.4 per cent but private buyer purchases were up 0.8 per cent.

On Tuesday, the minutes of the February 3 Board meeting are released – the meeting that decided on a quarter per cent interest rate cut. It’s uncertain what more could be gleaned about the decision. There was the statement after the meeting, the Statement on Monetary Policy and the Reserve Bank Governor will have outlined rationale for the move to the House Economics committee.

Still, the Board minutes are issued by the Reserve Bank. And all statements from the Bank are potentially important for investors.

Also on Tuesday the ABS will issue January data on imports of goods. Analysis of the data is complicated by the drop in oil prices which probably constrained the value of goods brought into the country. But on the other side of the equation, a weaker Aussie dollar may have driven up the value of imports in the month.

The other domestic economic data of note is Thursday’s release of detailed jobs figures for the month of January. We’ll have to wait another month to get the industry make-up of employment, but Thursday’s data will have regional and demographic detail.

Bevy of US economic data on offer

While there is a data famine in Australia, there is a feast of new economic figures for release in the US.

The week kicks off on Tuesday with the monthly capital flows data, covering foreign purchases of assets such as bonds and information of longer-term net flows of funds.

Also on Tuesday the housing market index from the National Association of Home Builders is released together with the usual weekly figures on chain store sales. Economists tip a small rise in the NAHB index.

On Wednesday minutes of the last Federal Reserve meeting are released and investors will look for clues on the timing of rate hikes. Data on housing starts is issued together with producer prices, industrial production and the weekly figures on mortgage finance. Weather and oil prices are likely to have influenced the figures. Economists tip a near 2 per cent fall in housing starts in January due to snow storms in the north-east while production may have lifted 0.3 per cent on the back of higher energy output.

And lower oil prices may have dragged producer prices down 0.4 per cent in January. Stripping out fuel and energy, producer prices may have actually risen by 0.1 per cent in the month. Investors need to carefully consider all the recent data releases as there are a number of non-economic factors driving change.

On Thursday the leading index is released together with the influential Philadelphia Federal Reserve survey and the weekly data on new claims for unemployment insurance (jobless claims). Forecasts centre on the leading index lifting by 0.3 per cent in January after a 0.5 per cent rise in December. The Philly Fed index is also tipped to rise – from 6.3 in January to 9.0 in February.

On Friday, the Markit group plan to release the “flash” reading on manufacturing activity in the US.

All the US data is critical at present as the Federal Reserve weighs up the best time to start lifting interest rates.

Sharemarket, interest rates, currencies & commodities

The Australian profit reporting season will be in full swing over the coming week.

Amongst companies expected to report on Monday are Aurizon Holdings Limited, Bendigo and Adelaide Bank and Charter Hall Retail.

On Tuesday there are at least 13 earnings announcements from ASX 200 companies including Amcor, Coca Cola Amatil, InvoCare, Seek Limited and Sonic Healthcare.

On Wednesday, Arrium, Asciano, IAG, Seven West, Toll Holdings and Woodside Petroleum are scheduled to issue results.

On Thursday, AMP, Fairfax Media, Federation Centres, the Reject Shop, Tatts Group, Virgin Australia and Wesfarmers are scheduled to report.

On Friday Adelaide Brighton, Crown Resorts, James Hardie, Medibank Private and Santos are listed to issue earnings results.

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