SCOREBOARD: Political pantomime
Today's ALP leadership ballot will no doubt be entertaining but the ramifications for the market seem less dramatic.
Either way it’s all very exciting and a welcome distraction from this recession we’re not having – yet at the same time are. The bottom line for markets is that the result won’t really matter all that much. There was talk that Kevin might tinker at the edges with the carbon tax, etc, but who knows – we may never know. In any case, the current government will almost certainly be annihilated at the next election if polls are any guide – and they are – so the future of the carbon tax is cloudy anyway. The Australian dollar and debt I doubt will move.
With that out of the way we get two key economic pieces for the Aussie market this week which will probably matter quite a bit for the market. Construction work done on Wednesday and then capex on Thursday both give us a measure of what business investment is likely to have done for the quarter. We all know the broader story, that the mining boom has led to enormous investment, etc, and this is set to drive economic growth for some time. So far so good, this is indeed happening. What is less well known is that strength in investment is broad-based across sectors.
The common perception is that it is only in mining. Yet manufacturing is seeing strong investment as are other sectors. Now this is all good and well but there is a downside: volatility. Investment outcomes are notoriously volatile – they are lumpy – and if investment is and is going to continue to be a huge driver of GDP then we can reasonably expect GDP outcomes to be more volatile quarter-on-quarter.
Coming after what was very strong growth in the third quarter then, there are reasonable downside risks to the consensus view that capex will increase 3.8 per cent in the fourth after a 12.3 per cent increase in the third. I’m looking at a 2 per cent lift but a lower outcome can’t be ruled out. You can imagine the market reaction and associated news flow to a negative capex print. Construction work done is out the day before, on the Wednesday and seems to get less market attention. Look out for this as a guide to any downside risks for the more closely watched capex survey (market looking for -0.8 per cent).
Other than the business investment numbers, there is a smattering of housing data including HIA's housing affordability index today (for the December quarter), HIA new home sales (Wednesday), RBA credit numbers Wednesday (January), RP Data Rismark House prices on Thursday (January) which appear just before building approvals (at 1130 AEDT). The market looks for a 2 per cent increase here.
Retail sales (January figures) will probably attract most of the attention outside of the investment numbers. Recall that this series shows retail spending is weak, although it is often forgotten that this monthly series is only meant to be a guide or a partial indicator to the more robust national accounts. As I have argued for a long time now, the national accounts show retail spending is much stronger and it was a very positive development to see the RBA board acknowledge, as they did in the minutes, that there are parts of retail where spending is strong. For what it’s worth, the market forecasts sales to rise 0.3 per cent and I’m not different from that.
Across the sea, the Kiwis put out the trade balance today at 0845 AEDT. On Wednesday we see the NBNZ’s business confidence report. Not much else, trade and commodity prices later in the week.
So looking abroad, don’t forget the ECB launch their second 3-year LTRO this week. The first was huge and did much to reduce market stress indicators. This will no doubt consolidate that process.
Then in the US there is quite a bit of hard hitting data. On Monday we see pending home sales (January) and the Dallas fed manufacturing index (February). Tuesday sees Durable goods (January) and after some strength (4 per cent) last month a weaker result is forecast this month. S&P house prices (December) consumer confidence (February), and the Richmond Fed index (February) are also due on Tuesday.
On Wednesday night we get the second estimate of fourth-quarter GDP (no changes expected) and the Beige Book. Finally on Thursday, personal income and spending (February ), the ISM (February) and construction spending (January) are due.
Adam Carr is senior economist at ICAP Australia. See Business Spectator's glossary for definitions of technical terms used in SCOREBOARD articles.
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