Weekly Market & Currency Developments – From Our Bankers

Week Beginning May 13 2018

Australia: Wages growth and jobs report in focus

• In Australia over the coming week, the main focus will be on the latest quarterly Wage Price Index (WPI). Wage growth is crucial for the inflation and interest rate outlook. All eyes will also be on the employment report on Thursday.

• The week kicks off on Monday when the Reserve Bank issues statistics on credit and debit card lending and ATM transactions for March. The average credit card balance rose by $94.10 to $3,180.70 in February – the largest increase in 21⁄2 years.

• On Tuesday the Bureau of Statistics (ABS) releases lending finance data. Total new lending commitments (housing, personal, commercial and lease finance) fell by 1 per cent in February to $70.7 billion. Commitments are up by 4.7 per cent on a year ago.

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

• The Reserve Bank also releases minutes of its May Board meeting on Tuesday. However, the commentary is unlikely to provide fresh perspectives following the release of the quarterly Statement on Monetary Policy last Friday. Also, Reserve Bank Deputy Governor Guy Debelle speaks at the CFO Forum in Sydney and ISDA Forum in Hong Kong (video link).

• Rounding-out the data deluge on Tuesday, the ABS releases the “Overseas Arrivals and Departures” publication. The publication includes data on tourist flows as well longer- term migration data. A record number of Chinese, American and Indian tourists visited Australia in February.

• On Wednesday the much anticipated data for the wage price index for the March quarter is issued. The latest data on enterprise bargaining agreements showed average annualised wage increases lifting from 2.2 per cent to 2.5 per cent. Skills shortages are becoming more evident in high demand sectors as the labour market tightens. The wage price index is tipped to increase by 0.6 per cent to be up 2.2 per cent over the year to March.

• Also on Wednesday, the monthly Westpac and Melbourne Institute consumer confidence reading is released. In April confidence fell by 0.6 per cent as share market volatility and trade war rhetoric weighed on household sentiment. But the index remained above 100, indicating that there are still more optimists than pessimists.

• On Thursday the ABS issues the April employment report. The record-breaking job-creation machine has slowed in recent months. The net employment gain of just 4,900 in March reflected a softening in leading indicators such as the ANZ job advertisements index. The unemployment rate remains ‘sticky’ at 5.5 per cent due to an increase in the participation rate. More females and older workers are working or looking for work than ever before. Economists tip an increase in total jobs of around 20,000 during the month.

• On Friday the CommBank Business Sales Indicator (BSI), a measure of economy-wide spending, is released for April. The annual trend growth in sales lifted to 7.2 per cent in March – the fastest growth for almost 31⁄2 years.

Overseas: China monthly activity data dominates

• The monthly report cards on Chinese investment, production, retail sales and house prices will be issued over the week. In the US, a number of ‘top shelf’ indicators will also be released such as sales and production.

• The week kicks off in China on Tuesday with April data on investment, production and retail sales to be issued. Manufacturing purchasing managers’ indexes were broadly stable in April, implying that investment and production recorded respective annual gains of 7.5 per cent and 6 per cent over the year to April. And with consumer confidence near 20-year highs, annual growth of retail sales is tipped to remain near 10 per cent.

• The regular weekly data on US chain store sales will also be issued on Tuesday while mortgage finance data ison Wednesday and new claims for unemployment insurance on Thursday.

• In the US, the National Association of Home Builders (NAHB) index, business inventories, the New York State Empire manufacturing survey and retail sales data are all released on Tuesday. Retail sales rose 0.6 per cent in March, halting a streak of three consecutive monthly declines in sales. Consumers continue to show some restraint in discretionary spending. However, a lift of 0.4 per cent in retail spending is forecast.

• On Wednesday the National Bureau of Statistics issues China’s 70-city housing price data for April. House price growth decelerated to 4.9 per cent in March, 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. A further decline in the annual growth rate to 4.5 per cent is tipped by economists.

• Also on Wednesday US housing data is released. Housing starts rose by 1.9 per cent in March with building permits up by 4.4 per cent. The gains in the month were driven almost entirely by multi-unit dwellings.

• On Thursday economists expect that US industrial production rose a further 0.6 per cent in April. Manufacturing, utilities and mining are all contributing to the upturn in output. Capacity utilisation was at 78 per cent in March.

• Also on Thursday the influential Philadelphia Federal Reserve manufacturing gauge is released for May. There was a notable pick-up in the underlying prices paid index in April, signalling a lift in business inflationary pressures.

• The Conference Board’s leading economic index for April is also scheduled for release on Thursday.

Weekly Global Currency Outlook

• USD will remain range bound this week. US core CPI inflation in April was soft and there are no major US economic data releases this week that would justify a material upswing in the USD and US yields. Nonetheless, near‑term global economic growth concerns remain USD supportive. Leading indicators like the global manufacturing PMI have rolled over, consistent with a near‑term soft patch in global economic activity.

• AUD/USD will likely trade firm this week supported by encouraging Chinese economic activity (Tue) and favourable Australian employment conditions (Thu) for April. But the risk to AUD/USD are skewed to the downside because of the possibility of softer Australian wage growth in Q1 (Tue). In line with consensus, CBA economists expect overall Wage Price Index (WPI) to lift by 0.6% over Q1 which would push annual growth up a touch to 2.2% from 2.1% in Q4 2017. This risk lies with a weaker 0.5% quarterly growth print because underemployment is still elevated and inflation expectations are contained.

• AUD/NZD has scope to edge a bit higher this week. The Labour‑NZ First Government releases its first Budget on Thursday. Our ABS colleagues expect the Government to comfortably run an operating budget surplus of a similar magnitude to that forecast at the 2017 Half‑Year Update. Nevertheless, low New Zealand interest rate expectations remain a headwind for the NZD.

• GBP/USD will consolidate over the coming week, with downside risks. The Bank of England’s (BoE) more cautious outlook for UK GDP growth and inflation means BoE policymakers can afford to keep policy settings on hold a while longer. In our view, Tuesday’s UK March average weekly earnings growth will have to surprise significantly above consensus (2.7% YoY) for UK interest rate expectations to re‑adjust higher in favour of GBP. Meanwhile, Brexit uncertainty will continue to curtail GBP upside.

• EUR/USD faces modest upside risk this week. The Eurozone May ZEW survey (Tue) is projected to show an improvement in financial market experts’ view on the Eurozone economy. On Thursday the Eurozone current account surplus is expected to remain large in March, indicative of solid underlying demand for EUR. In Italy, the Five Star Movement and Northern League will likely announce their plan for a coalition government on Monday. We don’t expect a material EUR reaction because both parties have dropped their anti‑euro rhetoric.

• USD/JPY will trade heavy this week. Positive employment conditions and the multi‑year high in the Tankan business conditions survey point to upside risk to the Q1 GDP outcome (consensus: flat over the quarter) (Wed). Meanwhile, Japan core CPI inflation (Fri) is expected to slow to an annual pace of 0.4% in April from 0.5% the previous month. Still, faster average monthly earnings suggests the uptrend in core inflation is intact. This further reduces the likelihood of more Bank of Japan easing and offers support for JPY.



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