Reserve Bank in the spotlight
A raft of economic data will be released in the coming week together with a number of private sector surveys. But most investors and analysts are focused on one thing: the first Reserve Bank board meeting for 2015.
The Reserve Bank board meets on Tuesday and much has changed in the past two months. Oil prices have plunged, the Aussie dollar has also weakened, and the European Central Bank has unveiled its own bond-buying program.
While we can’t totally rule out a rate cut from the Reserve Bank, it is almost certain that there will be a shift in rhetoric. That is, rather than indicating that monetary policy is stuck in neutral, the Reserve Bank will shift to an ‘easing bias’, suggesting rates could fall in coming months.
The spotlight on the Reserve Bank doesn’t stop with the Board meeting. The quarterly Statement on Monetary Policy will also be released on Friday. Not only does this report assess economic developments over the past quarter, it includes the latest economic growth and inflation forecasts.
In terms of economic data, the CoreLogic RP Data home value index is released on Monday with the monthly inflation gauge and Performance of Manufacturing index.
On Tuesday data on international trade is issued with the monthly building approvals publication.
On Wednesday the January new car sales figures are released with the Performance of Services index and alternate inflation for demographic groups.
And on Thursday the December retail trade figures are released. Not only will the report cover the Christmas and Boxing Day clearance sales period but it will also contain quarterly estimates of real or price-adjusted sales for the December quarter.
US employment figures dominate attention
The 'star' of the US monthly economic data calendar is the non-farm payrolls (employment) figures, which will be released in the coming week on Friday.
Economists expect that the good run of results continued in January with 230,000 jobs created. Apart from the jobless rate, the other indicator in the report that will be scrutinised will be the measure of wages. If wages are starting to lift, the Federal Reserve will be more likely to lift interest rates.
In terms of the other indicators, the procession starts on Monday with data on personal income and spending, construction spending and the ISM manufacturing index.
On Tuesday, data on factory orders is expected with the usual weekly data on chain store sales and auto sales. Sales of new vehicles may have edged down from a 16.92 million annual rate to 16.9 million in January.
On Wednesday, the ADP survey of private sector jobs is released together with the ISM services index. And on Thursday, international trade figures are released with the usual weekly data on claims for unemployment insurance and the Challenger job layoff series.
In China, the focus is on the various activity measures covering the manufacturing and services sectors. The official statistician, the National Bureau of Statistics, and the private sector HSBC Bank, both have purchasing manager surveys for the two key sectors of the economy. Overall the various surveys create more confusion than illumination. The NBS PMIs are released on Sunday while the HSBC measures are issued on Monday and Wednesday.
Sharemarket, interest rates, currencies & commodities
Financial market pricing suggests that there is a 50:50 chance that the Reserve Bank will cut rates on Tuesday but participants are more certain about a potential rate cut in future months.
The overnight index swap market has priced in a 50 per cent chance that the Reserve Bank will cut rates on Tuesday. Financial market participants believe that a quarter percent rate cut in four months’ time is almost certain (100 per cent chance) while the cash rate is projected at 2.11 per cent in nine months’ time.
The US profit-reporting season continues in the coming week while at the same time the Australian earnings season also kicks off. The 'confessional' period has been skewed to earnings downgrades rather than upgrades, but it has been by no means one-way traffic.
On Monday, earnings results are expected from JB Hi-Fi while Echo Entertainment is amongst those to report on Tuesday. On Thursday, earnings include those from Downer EDI, Flexigroup, REA Group and Tabcorp. And on Friday, earnings are expected from Royal Wolf Holdings.
Craig James is chief economist at CommSec.