The Week Ahead

Local observers will keep an eye on employment figures to assess whether a shift from part-time to full-time positions has taken place, while Chinese trade and inflation figures will also be of interest.

Graph for The Week Ahead

Employment in focus

There is something of interest for investors on each day in the coming week. There are no standout highlights, but the June employment figures due Thursday are notable, largely because the fall in the prior months job figures. The $64 question is whether the transition from part-time to full-time positions continues and is business hiring likely to lift over the second half of 2014.

In May, employment fell by 4,800 after a revised 10,300 lift in jobs in April (previously reported as a 14,200 increase in jobs). Full-time jobs rose by 22,200 and part-time jobs fell by 27,000. Meanwhile the unemployment rate was stable at 5.8 per cent.

At face value there does seem to be a shift from part time to full time jobs, which makes sense given that over the past year, business profitability has improved, and now employers are seemingly adding more full time staff. In fact a total of 101,200 new full-time jobs have been created in the first five months of 2014, marking the best start to a calendar year in seven years.

It’s worthwhile pointing out that businesses have also been increasing the hours worked of existing employees. This tends to happen when trading has picked up and employers don’t know if it will be maintained. If it is, then more casual workers will be put on and then more full-time staff -- the transition phase which we believe is currently taking place.

If employment rises again in June (we are tipping a 12,000 lift in jobs) or only falls modestly then the Reserve Bank will become even more confident about the economic outlook. We don’t expect interest rates to rise until the December quarter. But if unemployment is indeed close to peaking many analysts and investors will be revising interest rate forecasts. We expect unemployment to lift marginally from 5.8 per cent to 5.9 per cent in June.

Confidence, home loans are best of the rest

For those focused on the travel sector, including companies like Qantas. Flight Centre, Webjet and wotif.com the tourist arrivals data on Monday will be of interest.

The NAB business survey for June is released on Tuesday and it is likely to show that businesses remain confident about the outlook. However business conditions have been more mixed. Across the sub-indices in May, profitability was rather lacklustre, while the forward orders index shifted in the right direction.

Of more importance for retail stocks, will be the consumer confidence data on Wednesday. Confidence levels have been rather depressed over the past couple of months following the Federal Budget. In fact the sentiment surveys have suggested a rather pessimistic outlook, however given the lift in house prices, improved share markets and more importantly less discussion about the federal budget, it may be that confidence levels lift from here.

Investors that are focussed on companies and industries dependent on home purchase and construction will be interested in the home loan data on Friday. In April, home loans were largely flat in number, although the value of loans lifted by 2.3 per cent to a record $11 billion.

After the huge run-up in activity there have been signs of a consolidation. Recently new home loans have eased from 4-year highs and building approvals have been more volatile. We will be keep a close eye on the number of construction loans given that it fell by 1.1 per cent in April -- the first decline in nine months.

There is a close correlation between home construction loans, building approvals and housing work, with the latter driving the fortunes of residential developers and building material suppliers. In terms of owner-occupier loans we tip a 1 per cent fall in May with the value of all loans down 3 per cent.

Overseas: Chinese trade & inflation data hog the spotlight

With scant offerings of ‘top shelf’ US economic indicators, the focus shifts to Chinese data. Inflation data is slated for release on Wednesday with trade figures on Thursday.

In May annual growth of consumer prices was at 2.5 per cent with producer prices down 1.4 per cent on a year ago. Chinese inflation is well contained, opening the door for stimulus of some description if required.

However, the data in recent weeks suggests the Chinese economy has found a solid base and now showing signs of improving after a lacklustre six months. In June the official Chinese manufacturing PMI lifted from 50.8 to 51.0 in June -- a six-month high. And it is likely that strong export growth should lead to a healthy trade surplus of around $33bn in June.

The only US data with potential to influence markets are the minutes of the last Federal Reserve meeting (Wednesday) and to an even more marginal degree the consumer credit figures (Tuesday).

Investors will be looking for hints on the timing on the first US rate hike from the Fed minutes. At present inflation remains benign and the Federal Reserve is in no rush to even discuss timing of an interest rate rise. In terms of consumer credit a lift in borrowings has the potential to improve retail activity in subsequent months. Borrowings are tipped to have risen by $18.1bn in May.

End of financial year: Where to next for shares?

Total returns on Australian shares (All Ordinaries Accumulation index – share prices and dividends) grew by 17.6 per cent in 2013/14 after lifting by 20.7 per cent in 2012/13. It was the best back-to-back returns for Aussie shares in seven years.

Looking forward, corporate Australia is in strong shape, with businesses focused on both containing costs and boosting revenues. Companies continue to record profits and they maintain cash at high levels.

The challenges for corporate Australia in 2014/15 include the vagaries of local politics, downward pressure on margins, the high level of the Australian dollar and even the weather, as utilities and clothing retailers have found out with warmer-than-usual autumn and winter conditions.

CommSec expects the All Ordinaries index to be at 5,700 points at end-December 2014 and 6,000-6,200 points in June 2015.

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