Jobs and wages are key, China weakening

The market may be off to a poor start after Wall St ended its week in something of a funk and key Chinese data indicated that hopes of credit-inspired economic revival might be forlorn.

Industrial production, fixed asset investment and retail sales figures released by China's National Bureau of Statistics over the weekend were all disappointing.

"China's entire release of April data proved that the rapid acceleration seen in March in nearly all aspects — trade, production, investment and credit — was not sustainable," Societe Generale economist Wei Yao said.

In the US key indices lost around 1 per cent at Friday's close.

The S&P 500 slipped to a one-month low with stronger-than-expected retail sales prompting suspicions that interest rates may be on the rise again earlier than expected, perhaps even next month.

That took the US dollar down and oil slipped as well.

The 'mixed' jobs market

Employment returns to the spotlight this week, one of the good guys in the on-going soap opera that is the Australian economy.

The consensus forecast for Thursday's data is another 12,000 new jobs created in April and unemployment unchanged at 5.7 per cent.

Interestingly the Reserve Bank in its recent quarterly Statement on Monetary Policy — buried under its slashing of inflation forecasts — noted in typically cryptic tones "labour market indicators have been more mixed of late".

So just what does mixed mean and is it a worry?

UBS economist Scott Haslem said the "mixed" comment could be characterised by the recent difference between the NAB survey series of hiring intentions and the ANZ job advertisements series.

The NAB's business hiring intentions series remains above its long-term average and has even strengthen of late implying unemployment could fall in coming months.

The ANZ series appears to have plateaued and the annual pace of growth easing back to two year lows.

Mr Haslem said on balance the NAB data provides a clearer picture and that the unemployment rate is likely to remain below 6 per cent.

Wage growth to stay weak

While the wage price index (Wednesday) doesn't capture nearly the media attention of jobs numbers, it is becoming increasingly significant in the RBA's calculations.

The current 2.2 per cent year-on-year growth is the lowest recorded in the 18 years of the survey and played a big part in the RBA's decision to slash inflation forecasts.

The upside of the stodgy pace of wages growth is that has supported new jobs.

The downside — as Mr Haslem points out — is it has also flattened income growth, which may suggest that there is insufficient future demand in the economy to return inflation to its target.

Whatever the reason, the lack of wages growth in the face of a tighter jobs market is becoming an issue.

"Wage price data remains key, and any further sharp slowing will increase the likelihood of further RBA cuts over the coming year," Mr Haslem said.

"Indeed, the recent trends in enterprise agreements suggest some downside risk in our forecast — 0.5 per cent over quarter and 2.2 per cent for year — and the potential for a new record low year-on-year print."

The minutes from the RBA board meeting earlier in the month where the cash rate was cut to a record low 1.75 per cent are also out this week (Tuesday).

As is the case with meetings where rates are changes, the accompanying release gave no forward guidance.

However the minutes — when read in tandem with the RBA's recent Statement on Monetary Policy — might.

NAB economist Tapas Strickland said the key answers the market will seeking from the minutes are; how comfortable is the RBA with its new lower inflation forecast and how long is the board willing to allow inflation to remain outside its target band if economic activity and the job market continues to improve.

Overseas is pretty quiet with US inflation (Tuesday) perhaps the most significant.

Headline inflation is being pushed up by higher petrol prices and may jump to a still very modest 1.2 per cent over the year, while core inflation may dip down to 2.1 per cent.

The US also has some light reading with the minutes from the last Fed rates meeting (Wednesday) expected to detail a dim view about the global economy and a cautious approach to raising rates again.

James Hardie and Dulux results

The corporate calendar includes a full year's result from building materials outfit James Hardie and a half-year number from paint maker Dulux (both Tuesday).

For James Hardie — despite softening in its key US market of Texas due to oil's fall from grace — most analysts expect a pretty solid result and the company meeting its full profit guidance of up to $250 million.

Dulux is expected to produce an interim profit of around $60 million.

Like James Hardie, Dulux will be watched with interest for commentary about the domestic residential and construction market, which appears to be gaining momentum, particularly in New South Wales and Victoria.

This week's finance diary

Australia

Monday 16/5/16    
Tuesday 17/5/16

RBA minutes

Consumer confidence

 

New vehicle sales

Dulux half year

James Hardie full year

Further insights on this month's rate cut

Weekly ANZ series, impact of rate cut and election could be interesting

Continued strength expected

Interim profit of around $62m forecast

Guidance for a $US240 to 250m FY profit

Wednesday 18/5/16

Wage price index

RBA speech

Q1: Has been weak, 2.2pc YoY

Assistant Governor Guy Debelle speaks in Beijing

Thursday 19/5/16 Labour force Apr: Continues to be strong, another 15K new jobs expected
Friday 19/5/16

Leading index

 

Woodside investor day

Westpac's peak into the economic future. Slipped last month

Is it changing tack to deal with cheap oil world?

Overseas

Monday 16/5/16 US: NY manufacturing May: may edge back
Tuesday 17/5/16

US: Inflation

US: Housing starts

US: Industrial production

Apr: Will stay low

Apr: Nahb index, slow consistent recovery

Apr: Tipped to be flat MoM but down YoYChina

Wednesday 18/5/16

US: FOMC minutes

CH: House prices

Minutes from last "on-hold" meeting

Apr: Up around 5pc YoY

Thursday 19/5/16

US: Leading index

 

US: Crude oil stock

US: Jobless claims

Apr: Forward looking view of economy, expected to edge up

Weekly figure, stocks fell last week

Claims have been rising, although job market still healthy

Friday 19/5/16 US: Existing home sales Apr: Up a tad

Source: ABC News

 

 

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