Time for reflection
The coming week will again be largely devoid of ‘top shelf’ indicators in Australia. But the data and reports that are released will fill in some of the blanks about the state of the Australian economy.
The bi-annual Financial Stability Review is released by the Reserve Bank on Wednesday and on Thursday population data is released together with job vacancies and the Financial Accounts.
As is customary, the Reserve Bank board has been briefed on the Financial Stability Review with some of the key findings noted in the minutes of the last board meeting.
And most of the interest in the Financial Stability Review will centre on comments on the housing market. The Reserve Bank noted that competition in home lending had increased on the back of strong bank balance sheets and lower funding costs. But the RBA also noted that there hadn’t been an easing in mortgage lending standards and policies.
However in terms of risks, the RBA board said that “additional speculative demand could amplify the property price cycle and increase the potential for property prices to fall later. The main risks in such a scenario would likely be to the stability of the macroeconomy rather than the financial system, particularly if households were to react to declines in their wealth by cutting back on their spending. Members were also updated on some of the recent actions by the Australian Prudential Regulation Authority in this area.”
Certainly banks aren’t lending for new housing developments unless there is 80-100 per cent pre-commitments. So the risks lie with investors, either finding tenants for the new homes or in their ability to sell the properties in future and cover the cost of purchase.
If investors do have problems finding tenants, the RBA notes that this may affect their cash flows and therefore their ability to spend at retail stores. In short, not a problem as yet, but something to watch.
On Thursday the Bureau of Statistics releases the quarterly Financial Accounts. The accounts detail findings such as the cash position of super funds and families, household wealth levels, foreign holdings of shares and bonds and the value of housing assets (land and dwellings).
In the March quarter total household wealth (net worth) stood at a record $7,670 billion, up $137.9 billion over the quarter. In per capita terms, wealth rose to a record $327,263 in the March quarter, up $4,248 over the quarter.
Also on Thursday, the March quarter Demographic Statistics (population data). Over the year to the December quarter, Australia’s population grew by 1.73 per cent, down from 1.78 per cent in the year to September and the slowest growth in almost two years.
Also on Thursday, one of the forward-looking indicators of the job market – job vacancies – is also released. And the Reserve Bank Governor delivers remarks at an economic forum.
Overseas: A raft of key indicators in the US
In the US, the week kicks off on Monday with the release of the Chicago Federal Reserve National Activity index together with data on existing home sales. Economists expect that home sales fell by 3 per cent in August after a 2.4 per cent gain in July but sales aren’t too far off the best levels in seven years.
On Tuesday, the Markit organisation and some partner groups release “flash” readings on manufacturing activity in the US, Europe and China. The data can be volatile but are still watched by investors. Also on Tuesday the FHFA measure of prices is released in the US together with weekly chain store sales.
On Wednesday data on new home sales is released together with the weekly report on mortgage transactions – purchases and refinancing. Economists expect that new home sales rose by around 5 per cent in August after falling for the past two months from near 6-year highs.
On Thursday the weekly data on claims for unemployment insurance is issued together with durable goods orders – a measure of business investment. A lift in aircraft orders boosted durable goods orders by 22.6 per cent in July, so some correction is tipped in August – a decline of 17.6 per cent is expected. Also on Thursday the Kansas City Federal Reserve manufacturing gauge is released.
On Friday in the US, revised economic growth (GDP) figures are released together with consumer sentiment. The US economy probably rose at a 4.5 per cent annual rate in the June quarter according to analysts, up from the earlier estimate of 4.2 per cent. It is clear that the economy is getting back to a more “normal” rate of growth. And consumer sentiment probably held near 84.6 in September, the best level since July 2013 and just off the strongest reading in seven years.
There have been three broad influences over the past fortnight serving to push the Aussie dollar lower. The first is lower commodity prices with the CRB futures index at a near 9-month low on September 15. The second is a stronger US dollar on speculation about when US rate hikes will begin. And the third influence is recent softness of Chinese economic data.
The Aussie dollar now appears to be more comfortable near US88-92c rather than US90-94c. But the Aussie is by no means the weakest global currency. The Aussie is actually up 1.6 per cent from the start of the year, making it the seventh best performing currency against the greenback.
Savanth Sebastian is an economist at CommSec.