What to Watch. Week Commencing 7 September Australia. Global > Economics. 4 September 2015

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1 Global > Economics What to Watch 4 September 2015 Week Commencing 7 September 2015 Australia: Thursday s August Labour Force the data highlight, NAB Business Survey Tuesday, Consumer confidence (weekly Tuesday, monthly Wednesday), housing finance (Wednesday), RBA s Ellis speaks on housing (Tuesday); RBA s Lowe and Debelle speak Wednesday NZ: Thursday s RBNZ MPS the highlight; 25 bps cut we expect; China: Trade data Tuesday, then the key retail sale, industrial production and fixed assets investment on Sunday US: NFIB Small Business Optimism and the Fed s composite Labour Market Conditions index Monday, then light on until Friday s PPI, UoM Consumer Sentiment and the monthly Budget report Friday Japan: Light week: Revised Q2 GDP Tuesday, Consumer Confidence Wednesday, Machine tool orders/machine orders (Wed/Thurs) Euro: EC Sentix Investor Confidence Monday, GDP revision Tuesday; German industrial production Monday, trade/current account Tuesday, CPI Friday UK: BoE Thursday, Industrial production, trade Wednesday, RICS House price balance Canada: Housing starts, BoC rate decision Wednesday, Capacity utilization Thursday, house prices Thursday/Friday Australia The main focus this week will be the always interesting monthly labour force report on Thursday, NAB Business Confidence and Conditions on Tuesday, Consumer Sentiment on Wednesday and three RBA speeches by Lowe, Debelle and Ellis. September. During this week the Australian dollar fell through US$0.70, and sharp depreciations are sometimes associated with a decline in consumer confidence. Business Conditions points to stronger spending It was the continuing weakness stemming from mining and related construction firms (which includes a large share on non-residential and engineering firms) together with the escalation of Chinese growth concerns that was putting firms confidence radar on alert in the July survey. While there was a pullback in Business Conditions last month, the service sector continued to outperform. With employment due on Thursday, the market will also be paying attention to the employment index out of the NAB Survey after it turned negative in July. As well as the national indicators, the Survey also tracks how the economy is performing on a state basis and its transition from resource to non-mining led growth. There is the emergence of an East- West economic divergence again, but this time in reverse. Less mining exposed States improving The week kicks off with the AiG PCI Construction index for August that was still below 50 in July at 47.1, hamstrung by the decline in resource sector spending outweighing the high levels of apartment construction in the East. The ANZ Job Ads release for August comes ahead of Thursday s Labour Force report. In July, Job Ads dipped 0.4%, growth having ebbed in recent months. Tuesday sees the release of the NAB Business Survey for August. After a strong report in June, both Business Confidence and Conditions gave up some ground in July, both down four points, Confidence to 4 and Conditions to 6, both still around long term average levels. Also on Tuesday will be with the weekly ANZ-Roy Morgan measure of consumer confidence for the first week of Also on Tuesday is the first of three RBA speaking events for the week, this time with Luci Ellis, the Bank s Head of Financial Stability Department speaking to the timely topic: Property Markets and Financial Stability: What We Know So National Australia Bank Research 1

2 Far. The market will be sensitive to any indication of heightened anxiety from the official monetary authorities about property markets, house prices, and progress with efforts to contain lending for investor housing, notwithstanding measurement issues and the role of foreign investment in supporting demand and development. First up on Wednesday is the Westpac-Melbourne Institute measure of consumer sentiment that staged a big bounce last month, up 7.8% to its long term average. Unemployment and job numbers have been choppier of late and with the local stock market more volatile and the AUD pushing down through 0.70, it would not be a surprise to see some pullback in this survey. hence economists expectations of the RBA being at the end of its easing cycle. NAB s models for employment points to a much smaller gain this month as the lagged impact of subdued leading indicators of labour demand point to a slow increase in headcount. NAB s models call for an increase of 6K in employment (call that pretty close to flat) that with some payback in a higher participation rate after last month s 0.3% out-sized rise would be sufficient to see the unemployment rate down a point to 6.2% from 6.3%. That forecast is very close to the consensus of estimates. Last month s unemployment rate an outlier? Wednesday then sees housing finance approvals for July, with recent data for approvals and housing credit suggesting some cooling in growth. For July, after June s 4.4% rise in headline growth of owner-occupied approval numbers, we look for slower growth of 1%, with focus also on investor lending approvals growth that dipped 0.7% in June. Also on Wednesday, RBA Deputy Governor Philip Lowe is speaking at a CEDA event in Melbourne. His speech is scheduled for midday. Whether he focuses on the current condition of the Australian economy, the international economy or other medium to longer terms aspects of growth remains to be seen. Either way, with this month s Board meeting out of the way, he has free rein to speak on any number of potential topics. Confidence close to long run average levels Note two other key watch points that will come with this release. First, as this is the mid quarter monthly survey it also comes with the broader measures of under-employment or as the Statistician terms it the underutilisation rate that includes those out of work with a marginal attachment to the workforce (and thus not meeting the strict looking for work criteria to be counted as unemployed) as well as those working short hours for economic reasons (those wanting more hours but unable to get the work). In the May quarter, the underutilisation rate was 14.3% after peaking last November at 14.9%. Global unemployment The RBA s Guy Debelle, Assistant Governor (Financial Markets) is speaking in London on Wednesday (7.00pm AEST) at a briefing on FX Global Code of Conduct. Debelle last year gave a very apposite speech on under-pricing of markets for volatility and he is not afraid of making his often forthright views known if the occasion and the time suits. On Thursday the local market s economic attention turns to the monthly labour force report for August. Despite the severe issues that the Statistician has had properly calibrating its measures of the the labour market,, the market remains attuned to this release. We also think the market will become increasingly more sensitive given than better than expected employment outcomes have driven the RBA s more favourable assessment of the economy. And The other key watch point is the introduction of new population benchmarks with lower population growth now set to be introduced with this survey. This will necessitate some revisions to employment growth (perhaps in the order of 1-3K National Australia Bank Research 2

3 per month), with revisions to the unemployment rate unlikely to be material, though you never quite know with this report. New Zealand And so the final September RBNZ Monetary Policy Statement (MPS) is nigh, Thursday. Back at the 23 July OCR review, Graeme Wheeler stated that some further easing seems likely. This has only been reinforced by the subsequent run of news, including the big fall in local economic confidence, as well as the global financial ructions. The market is all but fully priced for a 25bp cut for Thursday, to 2.75%. We, and the virtual majority of analysts, are picking a 25 point cut. To be sure, there is a lot of room for the RBNZ to lower its GDP growth forecasts, and raise its unemployment predictions. However, also to firm up its views around annual CPI inflation getting back to 2% over the coming year. The latter is aided by the much lower TWI the Bank will be starting with, compared to its June MPS forecasts. So, while there may be those out there punting on a 50 point cut at Thursday s MPS, we are certainly not one of those. Indeed, the September MPS might only vaguely infer a 2.50% bottom in the OCR, for a bit down the track (much as the market now prices, mind you). Plumbing lower lows in a policy rate can end up making little difference to marginal GDP and CPI outcomes, while simply creating bigger headaches in other realms. The recent evidence of broadening heat in the housing market is one example. Separately, there is the issue of dairy prices, which, we note, have risen a net 18% in $NZ terms since the July OCR review. Still plenty of inflation room for RBNZ easing Yes, we formally expect another 25bp rate cut in October, taking the OCR down to 2.50%. But this is based on the RBNZ still feeling under pressure by then by still-softening data rather than a strong belief the Bank should necessarily be easing as much as it looks likely to do (partly on the assumption the currency will keep doing the easing that is required). Meanwhile, however, we do have a slowing local economy to monitor. Not that we think this will be the story for Q2 economic activity, per se. But we do get a couple of critical indicators about this, this week. For Monday s (10:45am) value of Wholesale Trade, we look for a seasonally adjusted increase in the range of 1-2%, in order to infer the moderate bounce-back in real activity we expect for this industry in the Q2 GDP accounts. We also anticipate a rebound in manufacturing production in Q2 (from drought-dented primary food processing in Q1), which we hope will be implied by Tuesday s (10:45am) Manufacturing sales and inventory data. These reports will help us finalise our Q2 GDP growth estimate, which is currently on the cusp of 0.8/0.9%. For Thursday s (10:45am) electronic card transactions, we expect to see a 0.2% fall for August, but simply as payback from the hefty 1.1% lift in July. Only a full reversal would start to spoil the likelihood of a big bounce in the volume of retail trade in Q3, after the pause for breath it took in Q2. The BNZ Performance of Manufacturing Index, Friday (10:30am), will be perused for signs of global ructions, and China s economic slowdown, having a localised effect. The final local report of the coming week is Friday s (10:45am) Food Price Index for the month of August. We look for a flat outcome in this, as part of the 0.3% increase we expect for the Q3 CPI (for 0.3% y/y). Global Round-Up China: A very busy week data wise with any indicator of the Chinese economy now closely watched given worries over the momentum in the economy. The Trade Balance is out Tuesday and attention will likely be focused on imports as a barometer of domestic activity with the consensus at -8.0% y/y, a repeat of July s -8.1%. The CPI and PPI will also be closely watched on Thursday to judge the scope for future policy accommodation. Finally, the important activity data suite is out on the weekend, with Retail Sales, Industrial Production and Fixed Asset Investment all being released on Sunday. Finally, August New Yuan Loans, Aggregate Financing and Money Supply reports are due any time on or after Thursday. United States: A relatively quiet week in the US after tonight s non-farm payrolls where the consensus is for +217k. With the Fed seemingly approaching a Fed rate lift off (or crawl off?) by the end of the year, indications of whether sentiment in the US economy is being affected by current market volatility will be closely watched. The NFIB Small Business optimism index is out Tuesday and while the University of Michigan Consumer Sentiment index is out Friday. Outside of these, job-related data will continue to garner interest with the Fed s composite Labour Market Conditions Index out Monday, JOLTS Job Openings on Wednesday and Initial Jobless Claims Thursday. Finally, the PPI is out Friday but is unlikely to garner much interest. With the September FOMC meeting on 17 September fast approaching, the only scheduled speaker this week is the Fed s Kocherlakota speaking on Monetary Policy on Tuesday. Japan: On Tuesday is the Trade Balance along with a final read on Q2 GDP. The Eco Watchers survey is also out on Tuesday, while a preliminary read on Machine Tool Orders Wednesday may garner some interest, along with Machine Orders and PPI on Thursday. National Australia Bank Research 3

4 Eurozone/UK: For the Eurozone, a later/updated estimate of Q2 GDP on Tuesday will be the highlight, with the consensus at 0.3% q/q. Outside of GDP, the most important data releases are in Germany with Industrial Production Monday, and the Trade Balance Tuesday. A final read on German CPI on Friday is unlikely to yield much interest. In the UK, the week ahead culminates with the Bank of England meeting on Thursday, where all analysts expect the policy rate to be unchanged at 0.5%. With the post meeting statement containing no flavor, we will have to wait until the minutes to see whether current market volatility and subdued inflation is weighing on plans to normalise the policy rate. Prior to Thursday, important data includes Industrial Production and the Trade Balance on Wednesday. Finally RICS House Price data on Thursday may attract some attention as one of the more reliable readings on house prices. Canada: A quiet week ahead with the only major event being the Bank of Canada meeting on Wednesday, where all analysts expect the policy rate to be unchanged at 0.5%. With Canada now officially in recession, the statement will be closely watched for any hints of further easing. Outside of this are Housing Starts Wednesday and Capacity Utilisation Thursday. National Australia Bank Research 4

5 Key Data Releases Time NAB Country Economic Indicator Period Forecast Consensus Actual Previous GMT AEST Monday, 7 September 2015 NZ Wholesale trade Q2 1.50% -0.80% AU AiG Perf of Construction Index Aug AU ANZ Job Advertisements MoM Aug -0.4% JN Leading Index CI Jul P GE Industrial Production SA MoM Jul 0.90% -1.4% EC Sentix Investor Confidence Sep Tuesday, 8 September 2015 NZ ANZ Truckometer Heavy MoM Aug -0.3% NZ Mfg Activity Volume QoQ 2Q -0.3% UK BRC Sales Like-For-Like YoY Aug 1.2% AU RBA's Luci Ellis speaks on "Property Markets and Financial Stability: What We Know So Far" at Real Estate Symposium AU ANZ Roy Morgan Weekly Consumer Confidence Index Sep /+0.3% JN BoP Current Account Balance, sa Jul 1274B B JN GDP SA QoQ/Annualised QoQ 2Q F -0.5%/-1.8% -0.4%/-1.6% AU NAB Business Conditions/Confidence Aug 6/ CH Trade Balance, $US/CNY, bn Aug $48.9/.. $43.03B/ CH Exports/Imports YoY USD Aug -6.1%/-7.7% -8.3%/-8.1% JN Economy watchers' survey, Current/Outlook Aug 51.6/ GE Trade Balance Jul 23.5B 24.0B EC GDP. Revision Q2 0.3%/1.2% 0.3%/1.2% US NFIB Small Business Optimism Aug JN Eco Watchers Survey Current Aug US Labor Market Conditions Index Change Aug US Consumer Credit Jul $18.0B $20.740B Wednesday, 9 September 2015 US Fed's Kocherlakota (nv) speaks on Monetary Policy 7.15 UK BRC Shop Price Index YoY Aug -1.4% AU Westpac Consumer Conf Index Sep 99.5/7.8% CH CPI/PPI YoY Aug 1.6%/-5.4% AU Home Loans MoM Jul 1.00% 0.70% 4.4% AU RBA's Philip Lowe, Deputy Governor, speaks at CEDA event, Melbourne (no title as yet) JN Consumer Confidence Index Aug JN Machine Tool Orders YoY Aug P 1.7% UK Industrial Production MoM/YoY Jul 0.2%/1.5% -0.4%/1.5% UK Trade Balance Jul AU Briefing by RBA's Guy Debelle, Assistant Governor (Financial Markets), on FX Global Code of Conduct, London US MBA Mortgage Applications Sep CA Housing Starts Aug 193.5K 193.0K CA Bank of Canada Rate Decision Sep % 0.50% US JOLTS Job Openings Jul Thursday, 10 September 2015 NZ RBNZ Official Cash Rate Sep % 2.75% 3.00% NZ Card Spending Retail MoM Aug -0.20% 1.1% UK RICS House Price Balance Aug 44% JN Machine Orders MoM Jul 3.30% -7.9% AU Consumer Inflation Expectation Sep 3.7% AU Employment Change Aug 6K 5K 38.5K AU Unemployment Rate Aug 6.20% 6.20% 6.3% UK Bank of England Bank Rate Sep % 0.50% 0.50% CA Capacity Utilization Rate 2Q 82.7% CA New Housing Price Index MoM Jul 0.3%/1.3% US Initial Jobless Claims Sep K US Wholesale Inventories MoM Jul 0.30% 0.9% Friday, 11 September 2015 NZ BNZ-BusinessNZ Manufacturing PMI Aug NZ Food Prices MoM Aug flat 0.6% JN BSI Large All Industry QoQ 3Q NZ Non Resident Bond Holdings Aug 69.7% GE CPI MoM/YoY Aug F 0.0%/0.2% 0.0%/0.2% US PPI Final Demand MoM Aug -0.1% 0.2% US U. of Mich. Sentiment Sep P US Monthly Budget Statement Aug $-83.6B Sunday, 13 September 2015 CH Retail Sales YoY Aug 10.60% 10.5% CH Industrial Production YoY Aug 6.30% 6.0% CH Fixed Assets Ex Rural YTD YoY Aug 11.20% 11.2% Upcoming Central Bank Interest Rate Announcements UK BOE 10-Sep 0.50% New Zealand, RBNZ 10-Sep 2.75% 2.75% 3.00% Canada, BoC 10-Sep 0.50% Japan, BoJ 15-Sep 0.0%-0.1% 0.0%-0.1% 0.0%-0.1% US Federal Reserve 18-Sep % Australia, RBA 6-Oct 2.00% 2.00% 2.00% Europe ECB 22-Oct 0.05% GMT: Greenwich Mean Time; AEST: Australian Eastern Standard Time National Australia Bank Research 5

6 Global Markets Research Group Economics Peter Jolly Global Head of Research Australia Economics Ivan Colhoun Chief Economist, Markets David de Garis Senior Economist Tapas Strickland Economist FX Strategy Ray Attrill Global Co-Head of FX Strategy Emma Lawson Senior Currency Strategist Interest Rate Strategy Skye Masters Head of Interest Rate Strategy Rodrigo Catril Interest Rate Strategist Credit Research Michael Bush Head of Credit Research Simon Fletcher Senior Credit Analyst FI Distribution Barbara Leong Research Production Manager New Zealand Stephen Toplis Head of Research, NZ Craig Ebert Senior Economist Doug Steel Senior Economist Kymberly Martin Senior Market Strategist Raiko Shareef Currency Strategist Yvonne Liew Publications & Web Administrator Asia Christy Tan Head of Markets Strategy/Research, Asia UK/Europe Nick Parsons Head of Research, UK/Europe, and Global Co-Head of FX Strategy Gavin Friend Senior Markets Strategist Derek Allassani Research Production Manager Alan Oster Group Chief Economist James Glenn Senior Economist Australia Vyanne Lai Economist Australia Phin Ziebell Economist Agribusiness Amy Li Economist Australia Dean Pearson Head of Industry Analysis Robert De Iure Senior Economist Industry Analysis Brien McDonald Senior Economist Industry Analysis Karla Bulauan Economist Industry Analysis Tom Taylor Head of Economics, International Tony Kelly Senior Economist International Gerard Burg Senior Economist Asia John Sharma Economist Sovereign Risk Jacqui Brand Personal Assistant Important Notice This document has been prepared by National Australia Bank Limited ABN AFSL ("NAB"). Any advice contained in this document has been prepared without taking into account your objectives, financial situation or needs. Before acting on any advice in this document, NAB recommends that you consider whether the advice is appropriate for your circumstances. NAB recommends that you obtain and consider the relevant Product Disclosure Statement or other disclosure document, before making any decision about a product including whether to acquire or to continue to hold it. Please click here to view our disclaimer and terms of use. National Australia Bank Research 6