Weekly Market & Currency Developments – From Our Bankers

Investor Signposts: Week Beginning April 8 2018


Australia: Finance and confidence in the spotlight

• A broad sweep of economic indicators is released in Australia in the coming week together with a speech from the Reserve Bank Governor.

• On Monday the AiGroup releases the Performance of Construction index, an index that has risen for 13 months.

• On Tuesday the latest business survey from National Australia Bank is issued. In February the measure of business conditions hit a record (21-year) high. And to prove it wasn’t an aberration, the latest manufacturing survey from AiGroup was reported at record highs in March.

• Apart from business confidence, measures that focus on prices, wages and employment will attract scrutiny in the NAB survey.

• Also on Tuesday the weekly gauge of consumer confidence is issued by ANZ and Roy Morgan.

• On Wednesday, the monthly variant of consumer confidence is released – this time from Westpac and Melbourne Institute. In March, confidence edged just 0.3 per cent higher. But the index of confidence remains above 100, indicating that there are more optimists than pessimists.

• In terms of economic data, on Wednesday the Australian Bureau of Statistics issues the December quarter data on building activity. As well as estimates of the amount of building work done, there are also figures on housing starts (or commencements) as well as the amount of work in the pipeline. Home starts rose by just 0.7 per cent in the September quarter.

• The Reserve Bank Governor, Philip Lowe, also delivers a speech on Wednesday. The topic of the speech hasn’t been revealed as yet, but the speech is delivered to the Australia-Israel Chamber of Commerce in Perth.

• On Thursday the focus shifts to finance. The ABS releases the February figures on home lending while the Reserve Bank issues statistics on credit and debit card lending and ATM transactions. Home lending has slowed as markets rebalance and the number of new lending commitments for owner-occupiers has fallen in four of the past five months.

• And on Friday the Reserve Bank releases the bi-annual Financial Stability Review. The Reserve Bank will highlight the low level of problem loans and reduction in the share of interest-only housing loans being taken out. At the same time the Reserve Bank will express caution about the amount of new homes being completed and the potential impact they will have on home prices.

Overseas: Inflation data in focus

• There are key measures on consumer and producer prices to be released in both China and the US in the coming week together trade price data for the latter.

• The week kicks off on Tuesday in the US with data on producer prices (business inflation figures) as well as the small business optimism index from the National Federation of Independent Business (NFIB).

• The core measure of producer prices (excludes food and energy) may have lifted 0.2 per cent in March while the annual rate was likely to have remained unchanged at 2.5 per cent. The NFIB index may have softened in March in response to concern about a US-China trade war.

• The usual measure of chain store sales will also be issued on Tuesday.

• On Wednesday, data on consumer and producer prices will be released in China. And on the same day, consumer price data is released in the US alongside monthly budget data and the minutes of the last Federal Reserve meeting.

• The annual rate of Chinese producer prices may have lifted from 3.7 per cent to 3.8 per cent in March with consumer inflation down from 2.9 per cent to 2.5 per cent. In the US, the annual core measure of consumer prices may have crept higher from 1.8 per cent to 1.9 per cent.

• The minutes of the last Federal Reserve meeting will be dissected to find clues on the timing of the next rate hike.

• On Thursday, trade prices data (import and export prices) will be released in the US. And the usual weekly data on claims for unemployment insurance will be issued.

• On Friday the March trade figures will be released in China. Given the concern in the US about the size of the trade deficit maintained with China, these figures take on greater-than-normal significance.

• In the US on Friday the JOLTS series of job openings is issued – a forward-looking gauge on the job market. The University of Michigan also issues its preliminary estimates of consumer sentiment for March.

Financial markets

• According to FactSet, US analysts have lifted their March quarter earnings estimates for S&P 500 companies by 5.4 per cent. That result is important because earnings estimates generally fall in the first quarter. It is the strongest upgrade in earnings for the first quarter in the 15-year history of the series. Lower tax rates, higher energy prices and expectations for rate hikes in 2018 are some influences pushing up estimates for US earnings per share.


Weekly Global Currency Outlook

• USD consolidation is this week’s main currency theme. USD will be guided this week by tariff‑related developments and the US March core CPI report (Wed). Worries about a more severe escalation in trade tension between the US and China will continue to support the USD, especially versus the cyclically‑sensitive currencies. Consequently, Tuesday’s keynote speech by Chinese President Xi Jinping at the Boao Forum for Asia will be of particular interest. Jinping may use this platform to inflame trade hostilities with the US.

• On Wednesday, we expect US core CPI inflation to pick‑up less than expected in March (CBA view: 1.9% YoY, consensus: 2.1% YoY, prior: 1.8% YoY). US labour market conditions are tightening but wage growth remains relatively subdued (chart 1). Soft US inflation pressure will limit USD upside. Attention will also be on Thursday’s March FOMC meeting Minutes.

• AUD/USD will continue to trade on the defensive this week because of US/China trade‑related uncertainties. The threat that more inward looking US trade policies leads to retaliatory protectionism trade measures from the rest of the word (especially China) is a risk to our constructive global growth outlook. If trade tension worsens it will undermine economic confidence and be a drag on global growth.

• There are no policy relevant Australian economic data releases this week, so China’s March CPI (Wed) and trade balance (Fri) reports will likely have a bigger influence on AUD. In Australia March business confidence (Tue) and the April consumer confidence Indexes (Wed) are expected to point at further improvement in economic growth momentum. Meanwhile, RBA Governor Lowe is due to speak on Wednesday in Perth to the Australia Israel Chamber of Commerce. The title for this speech is “Regional Variation in a National Economy”.

• On Friday the RBA releases its semi‑annual Financial Stability Review (FSR). The FSR provides an update on the current condition of the financial system and potential risks to financial stability. Elevated household debt levels (chart 3) and low business credit demand could be topics of discussion.

• EUR/USD will consolidate over the coming week. There are few Eurozone data releases, meaning there is limited scope for EUR up moves in the coming week. Comments by ECB President Draghi on Wednesday may generate some EUR volatility.

• JPY will continue to be driven by overall financial market risk sentiment. Japan’s current account surplus narrowed sharply in February because of higher imports. But the overall trend reflects a firm current account surplus. This means JPY will continue to outperform during periods of heightened risk aversion.



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