The Week Ahead

More pieces to the puzzle

There are no top shelf economic indicators in the coming week. But the economy is generally seen as a puzzle, and to reveal the picture behind the puzzle, there are a number of things to watch over the coming week.

In Australia the week kicks off on Monday with panel participation by Luci Ellis, Head of Financial Stability, at the Australian Housing and Urban Research Institute seminar. With so much interest in the strength of the housing market, including proposals for new ways to check growth, the comments by Luci Ellis will prove illuminating.

On Wednesday the Bureau of Statistics will be releasing some alternative inflation measures. The ‘living cost indexes' attempt to show how inflation differs across different groups in the community such as wage earners and self-funded retirees.

On Thursday, the focus stays on price measures with data on export and import prices for the September quarter. The readings tend to be heavily influenced by changes in the Aussie dollar and oil prices. And the export price index is affected by changes in coal and iron ore prices. Also on Thursday, data on new home sales is issued -- a useful indicator from the Housing Industry Association on the state of home building.

Also on Thursday the ABS releases some more detailed findings on Australia's economic performance in 2013/14 (seems like a long time ago now!). The data includes estimates of the performance of industry sectors as well as greater detail on productivity changes in the last financial year. There shouldn't be any change to the bottom line economic growth result for the financial year with the economy growing by 2.9 per cent, not far from the 'normal' growth range of 3.00-3.25 per cent.

On Friday there are two items of note. The first is the release of data on business inflation, the producer price indexes. This data was useful in the past when it was released prior to the publication of the consumer price index. Now, the PPI is of less interest, although economists will still dissect the figures to determine if there are some emerging inflationary pressures.

Also on Friday the Reserve Bank releases the Financial Aggregates publication for September. Not only does the publication include figures on outstanding loans in the economy (private sector credit) but it includes data on the money supply, which last dominated consciousness back in the 1980s.

But all the credit and monetary indicators highlight how much liquidity is sloshing around the economy. In addressing the House of Representatives Economics Committee in August the Reserve Bank Governor actually made the point that monetary assets were up 13 per cent or $180 billion over the past two years. In other words, the money supply measures are still important for the Reserve Bank hierarchy and indeed there is plenty of liquidity in the economy.

We expect that private sector credit data will show a 0.4 per cent increase in September, taking annual growth to a 5½-year high of 5.2 per cent. Most interest will be in the measures of housing credit, especially investor home loans.

It is important to note that private sector credit is a lagging indicator of the economy. It is the by-product of new loans being written and older loans being repaid. But the financial indicators are important to show how much support the Reserve Bank is providing to economic activity.

Overseas: Spotlight on US Federal Reserve

US data dominates the overseas economic calendar in the coming week with the highlight being the Federal Reserve meeting on Wednesday. And the week kicks off on Monday with data on pending home sales while Markit releases its “flash” or early preliminary data on services sector activity.

On Tuesday, the Case Shiller measure of home prices will be released with a gauge of consumer confidence and figures on orders of durable (or long-lasting) goods with the latter also serving as a proxy for business investment.

On Tuesday and Wednesday, the Federal Reserve policymaking committee (the Federal Reserve Open Market Committee) meets to decide policy settings. The FOMC is widely expected to announce the end of the money printing program or Quantitative Easing. But surprises can happen. The FOMC will further debate when it believes that interest rates should start rising and also debate how this is reflected in the wording of the statement. Overall, there is a clear risk that decisions could induce more financial market volatility.

On Thursday the first estimates of economic growth are expected for the September quarter with economists tipping a healthy annualised growth rate of 3.1 per cent. Also on Thursday is the release of weekly data on claims for unemployment insurance. And on Friday, data on personal income and spending is issued with the final reading of the consumer sentiment index for October from the University of Michigan.

Interest rates, currencies and shares

The coming week has all the ingredients to spark another round of jittery trade on financial markets. Not only will there be another batch of US corporate earnings results, but there is also the FOMC meeting, US economic growth figures and no doubt further developments in issues such as the Hong Kong protests, war against ISIL and efforts to stem the spread of the Ebola virus.

In Australia, the focus is on major bank profit results with NAB due to report on Thursday, ANZ and Macquarie to report on Friday and Westpac to report on November 3.