• A quiet week is in prospect on the data front in Australia. The Reserve Bank releases the minutes of its April Board meeting. But the main focus will be on whether the Aussie labour market can continue its record-breaking run of monthly job gains.
• On Monday the Bureau of Statistics (ABS) releases lending finance data. The total value of new lending commitments (housing, personal, commercial and lease finance) rose by 0.5 per cent in January to $71.5 billion, up from US$71.1 billion in December. Commitments are up by 6.1 per cent on a year ago.
• On Tuesday the weekly gauge of consumer confidence is issued by ANZ and Roy Morgan.
• Also on Tuesday the Reserve Bank releases minutes of its April Board meeting. Commentary on wages growth, share market volatility, trade protection and household consumption could be ofparticular interest to market participants. We don’t expect any significant change in the Bank’s view on the inflation andeconomic growth outlook for Australia. Interest rates are firmly on hold.
• On Wednesday, the ABS releases the “Overseas Arrivals and Departures” publication. The publication includes data on tourist flows as well longer-term migration data. Tourist arrivals rose by 2.4 per cent to a record-high 760,200 during the month of January. Arrivals increased by 5.7 per cent over the year. Departures increased by 2.2 per cent to a monthly record-high 894,100 in January. Departures were up by 2.6 per cent on a year ago.
• Also on Wednesday the Department of Jobs and Small Business releases its internet vacancy index. The index has now risen for 16 consecutive months – the longest period of growth since March 2011. The index has increased by 10.5 per cent over the year to 51⁄2-year highs in February.
• On Thursday the ABS issues the March employment report. Jobs rose for a record-breaking 17th straight month in February. The unemployment rate edged-up to 5.6 per cent due to an increase in the participation rate to a near 7-year high of 65.7 per cent. The strengthening job market has encouraged people back into the workforce, to look for a job or to work more hours. The underemployment rate is 8.4 per cent, implying that there is still some slack in the labour market. Economists tip an increase in total jobs of around 25,000 during the month.
• On Friday the CommBank Business Sales Indicator (BSI), a measure of economy-wide spending, is released for March. The BSI rose by 1.0 per cent in trend terms in February – the strongest pace of growth in four years.
• In China, indicators such as economic growth, retail sales, investment, production and house prices are all issued. Output is expected to remain solid, despite seasonal volatility caused by the Lunar New Year holiday period.
• The week kicks off on Monday in the US with data on retail sales, the National Association of Home Builders (NAHB) index and the New York State Empire manufacturing survey.
• Attention will turn to China on Tuesday. The all-important March quarter economic growth (GDP) will capture themost headlines. The Chinese leadership continues to target ‘sustainable’ and ‘quality’ growth outcomes as it tiltsoutput towards the consumer. Economists forecast an annual growth rate of 6.8 per cent with activity supported by the industrial sector. The technology and financial sectors may have contributed less this quarter. Retail sales annual growth of near 10 per cent is tipped.
• On Tuesday US housing data is released. Starts and permits were weaker-than-expected in February, yet the underlying increase in single-family starts and the uptick in the number of units under construction provided optimism.
• Also on Tuesday economists expect that production rose a further 0.4 per cent in March. Capacity utilisation is at the highest level in three years, implying potential increases in input costs. All at a time when higher tariffs are proposed, potentially boosting inflation.
• On Wednesday, the US Federal Reserve re-takes centre stage. The most recent Beige Book – a national survey– cited that “most [US} districts saw employers raise wages and expand benefit packages in response to tight labour market conditions”. Federal Reserve Vice Chair for Supervision, Randal Quarles, testifies before the US Senate Banking Committee.
• Also on Wednesday the National Bureau of Statistics issues China’s 70-city housing price data for March. House price growth decelerated to 5.2 per cent in February, continuing the decline from a peak of 12.6 per cent in November 2016. Policymakers have announced stricter property-buying controls in an effort to cool prices. In tier-1 cities, housing prices fell on an annual basis in January for the first time since May 2015.
• On Thursday the influential Philadelphia Federal Reserve manufacturing gauge is released for March. In February, 64 per cent of firms reported labour shortages, while 70 per cent of firms highlighted skills mismatches between business requirements and available labour.
• Also on Thursday the Conference Board’s Leading Economic index is issued for March. The index increased by 0.6 per cent in February. The index is tipped to rise by 0.4 per cent in March.
• USD will likely trade closer to the lower‑end of its two‑month range this week. Measures of US inflation expectations are mixed and do not justify a significant upward revision to US interest rate expectations. The 10‑year Treasury breakeven rate (market‑based measure of expected inflation) is at its highest level since September 2014 but the University of Michigan consumer survey of long‑term inflation expectations ticked‑down in April to near its lowest level on record (chart 1). Still, a solid US March retail sales report on Monday can offer USD some intra‑day support.
• NZD/USD can sustain a move above 0.7400 this week despite the likelihood of soft New Zealand (NZ) inflation pressures (Thu). In line with consensus, our colleagues at ASB anticipates headline CPI inflation of just 0.4% QoQ (1% YoY) in Q1 which is weaker than the RBNZ projection of 0.6% QoQ (1.1% YoY). The change in tertiary education policy at the start of year (see NZ economic preview on page 2 for details) will likely be a key drag to NZ Q1 headline CPI inflation. Consequently, we doubt New Zealand interest rate expectations will adjust lower on a more muted headline CPI inflation print (chart 2).
• AUD/USD faces upside risks this week. Leading indicators suggest China’s economy will likely grow at an annual pace of 6.8% in Q1 driven by steady consumption and investment (Tue). This will underpin commodity prices and Australia’s terms of trade (chart 3). In Australia, we anticipate the economy to add 25k jobs in March (Thu) making it seventeen consecutive months of jobs increase.
• USD/CAD will grind lower this week supported in part by higher crude oil prices and the Bank of Canada’s (BoC) meeting (Wed). We expect the BoC to keep its target for the overnight rate at 1.25% (which is more than 80% priced in by Canada’s OIS curve) and stick with its rate hike bias. The risk is the BoC lifts slightly its headline CPI inflation forecasts (currently at 2.1% in 2018 & 2019 to reflect improving underlying CPI inflation and wages growth (chart 4). Higher BoC inflation projections can trigger an upward revision to Canadian interest rate expectations in favour of a stronger CAD versus USD and AUD. Our base case scenario remains for the BoC to raise rates again in October.
• GBP/USD will lift over the coming week reflecting possible positive Brexit negotiation developments and favourable UK economic activity. The next round of EU‑UK Brexit trade talks are held this week (Mon‑Wed). Meanwhile, UK average weekly earnings data is expected to grow at an annual pace of 2.8% in February (Tue) and headline CPI inflation will likely print at levels around 2.7% YoY (Wed). This will add to evidence that the squeeze on UK consumer’s real wages is coming to an end.
• EUR/USD has scope to edge higher this week. The Eurozone March ZEW survey (Tue) is projected to show financial market experts maintain a constructive view on the Eurozone economy. EUR can also benefit from a large February Eurozone current account surplus (Thu).
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