The Experts

The week ahead: home prices in the spotlight

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A flood of new economic indicators is expected over the coming week. In Australia the latest data on home prices is the highlight.

The week kicks off in Australia on Tuesday, when the Reserve Bank releases the latest private sector credit figures (essentially data on outstanding loans). For 14 straight months, credit has grown by between 0.4-0.6 per cent per month and it is reasonable to expect a similar result in December, keeping annual growth at 5.4 per cent.

Also on Tuesday, the NAB business survey and weekly consumer sentiment data are expected. Consumers remain generally positive, especially on spending intentions. The interesting thing to watch is the indicator on inflation expectations, which is at 4½-year highs.

On Wednesday, the Australian Bureau of Statistics (ABS) releases estimates of living costs (inflation) for different groups in the community such as wage earners and pensioners.

Also on Wednesday, CoreLogic will release the January estimates on home prices – the most comprehensive monthly report on the topic. In December, capital city home prices recorded a solid 1.4 per cent gain. But on the data available so far in January, capital city home prices have only lifted by 0.4 per cent. Melbourne prices have lifted 1.1 per cent in January so far but Perth and Brisbane prices have fallen by around 0.5 per cent. Sydney prices are up 0.3 per cent in the month.

And the latest gauge on manufacturing activity – the Performance of Manufacturing index – is also released on Wednesday. The December reading was encouraging at 55.4 (any reading over 50 indicates expansion). Investors would hope for similar strength in January.

On Thursday there are two indicators of note to be released by the ABS – international trade and building approvals. In November Australia’s trade balance improved by $2,362 million to a surplus of $1,243 million. It was the first monthly trade surplus in 33 months and largely reflected higher coal and iron ore prices. But higher coal and iron ore volumes and prices as well as higher Liquefied Natural Gas (LNG) revenues should support trade accounts in coming months. A surplus of $3.0 billion is tipped for December.

Dwelling approvals have been volatile in recent months – up 7 per cent in November after an 11.8 per cent fall in October. Approvals have peaked, although they are only easing slowly in trend terms from peak levels.

On Friday the Federal Chamber of Automotive Industries will release the January new car sales figures – one of the timeliest economic indicators. Car sales were at record levels for a calendar year in 2016.

Overseas: US interest rates and jobs are in focus

There are two stand-out events in the coming week: the interest rate decision from the US Federal Reserve and the release of monthly jobs data in the US.

The week kicks off on Monday with the release of US personal income & spending figures together with the pending home sales index. Economists tip healthy gains of 0.4 per cent for both incomes and spending.

On Tuesday, the US Federal Reserve starts a two-day meeting (decision announced Thursday morning Sydney time). The Fed is poised to lift rates – but not yet, given that inflation is contained. Most economists expect around three rate hikes this year, but the Fed may hold off a little longer.

Also on Tuesday the Case-Shiller measure of home prices is released alongside consumer confidence and the weekly data on chain store sales. Confidence is at 15-year highs while home prices are up a healthy 5.1 per cent on a year ago.

On Wednesday, the ISM manufacturing activity gauge is released with the ADP National employment index and January auto sales data. Latest data shows solid manufacturing activity (index of 54.5). The ADP survey is also expected to see a lift in job growth from 153,000 in December to 168,000 in January.

On Thursday, the Challenger survey of job layoffs is released with the weekly data on claims for unemployment insurance.

And on Friday the all-important non-farm payrolls (employment) data is released with factory orders and the ISM survey of activity in the services sector. As per the last report it is not just jobs in focus. Average earnings (wages) rose by 0.4 per cent in December. If we see a similar sort of increase in January, policymakers may start worrying about potential inflationary pressures. And as a result the Fed may be more likely to lift interest rates.

In China the National Bureau of Statistics releases its purchasing manager reports for manufacturing and services sectors on Wednesday. And the Caixin manufacturing survey is issued on Friday.

Sharemarkets, interest rates, exchange rates and commodities

The US earnings season is in full swing. And it is a case of so far, so good. According to Thomson Reuters, December quarter earnings may have lifted 7 per cent over the year, the biggest increase in two years.

“Of the 146 companies that have reported earnings through Thursday morning, 69.2 per cent have topped expectations, compared with the 63.6 per cent average since 1994.”

The Australian earnings season gets underway next week with Navitas and CYBG Plc to report on Tuesday. There will be much focus on whether companies are now experiencing better fortunes than was the case around mid-2016.

Upcoming economic and financial market events

Australia

Tuesday January 31: Private sector credit (December). Monthly growth of 0.4-0.5 per cent is expected.

Tuesday January 31:  NAB business survey (December). Confidence & conditions are positive.

Tuesday January 31: Weekly consumer sentiment. From ANZ and Roy Morgan.

Wednesday February 1: Selected Living Cost indexes (Dec quarter). Alternate inflation gauges.

Wednesday February 1: Home value index (January). Latest data from CoreLogic.

Wednesday February 1: Performance of Manufacturing (January). The lower currency is boosting activity.

Thursday February 2: International trade (November). Surplus of $3.0 billion is tipped.

Thursday February 2: Building approvals (November). Approvals may have fallen 2.5%.

Friday February 3: New car sales (January). Car sales are at record highs.

Overseas

Monday January 30: US Personal income (December). Income & spending may have both lifted 0.4%.

Monday January 30: US Pending home sales (December). A gauge on the housing sector.

January 31/February 1: US Federal Reserve meeting. Rates are tipped to lift later in 2017.

Tuesday January 31: US Case Shiller home prices (November). Annual growth sits at 5.1%.

Tuesday January 31: US Consumer confidence (January). Confidence is at 15-year highs.

Wednesday February 1: US ISM manufacturing (January). Index was 54.7 in December.

Wednesday February 1: US ADP National Employment (January). Private sector jobs may have risen 168,000.

Thursday February 1: China Purchasing managers (January). Covers services and manufacturing.

Thursday February 2: US Challenger job layoffs (January). More insights on the job market.

Friday February 3: US Non-farm payrolls (January). Jobs may have lifted by 168,000.

Friday February 3: US Factory orders (December). A 1.7 per cent rise in orders is expected.

Friday February 3: US ISM services (January). December reading was 57.0.

Published: Monday, January 30, 2017

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