The Week Ahead
- The transition from mining to non‑mining led growth is on track. Next week’s data on housing lending, consumer sentiment, construction, employment and dwelling starts will provide further detail on the transition.
- US non‑farm payrolls could be stronger than expected. Employment data is key for Fed tapering decisions over 2014.
- Other important US data over the week ahead are retail sales, CPI and industrial production.
Welcome to 2014! The Australian data flow has begun the new year quite positively with signals that the transition to non‑mining led growth is proceeding as loose monetary policy continues to work its way through the economy. Our outlook for the Australian economy and financial markets for 2014 is included in the Perspective.
In Australia, housing‑related data points are expected to show that the recovery in the housing market is firmly entrenched. Total housing lending to owner‑occupiers and investors looks like it continued to increase in November, rising by around 4%. The ABS’ QIII building activity release will detail the number of dwelling starts over the period. We are looking for a 1% increase in commencements in QIII. A surge in approvals towards the end of QIII and start of QIV will see stronger levels of commencements in the periods ahead.
The January reading of consumer sentiment may pick up given anecdotal evidence of solid retail sales growth over the Christmas period. Stronger than expected retail sales data this week indicates that the period of weak retail outcomes are easing thanks to prior cuts to the cash rate and rising house prices. Consumer unemployment expectations are likely to remain elevated while there are highly publicised news around large job losses. The December employment report is the key release next week. We expect modest jobs growth around 11K in the month The overall trend in employment growth has been soft. But, despite this the unemployment rate has hovered around 5¾% due to a falling participation rate.
The engineering construction data provides additional detail on work done over the period. The data provides useful information on mining capex and the progress of non‑residential construction, which is key for the non‑mining outlook.
New Zealand data includes the NZIER quarterly survey of Business opinion which should show a decent improvement in business confidence in line with the strengthening seen in the ANZ survey. NZ retail card spending should show another lift, indicating a strong end to the year. The outlook for the New Zealand economy in 2014 is included from page eight.
The Japanese current account is likely to be a deficit around ¥150bn. This would be the third consecutive current account deficit for Japan. The deterioration in the Japanese current account is one of the factors contributing to the depreciation in the Japanese Yen.
Tonight, the US non‑farm payrolls are expected to print around 197K, in line with recent outcomes. The strong ADP employment report released earlier this week suggests an upside risk to December payrolls. The unemployment rate looks like it will remain at 7.0%. Outcomes in the labour market will be key for the Fed’s tapering decisions this year.
US advance retail sales are published next week and are expected to show a more modest rise in December following a strong outcome in the previous month. December US CPI is expected to pick up thanks to rising fuel prices. Annual core inflation however should stay sub 2%. The pace of industrial production growth is expected to moderate in December given recent trends in the ISM. The Fed also release their Beige Book which provides analytical insights into economic conditions in each Fed district and sectors of the US economy.
The only major Eurozone release is November industrial production. The strong lift in German industrial production in November and the improvement in the Eurozone PMI suggest a bounce back in Eurozone industrial production. UK data includes CPI and retail sales. UK CPI has eased recently but there may be some upward pressure over the next few months as utility prices have risen. Retail sales growth should continue to edge higher towards its long‑run average as confidence lifts and the labour market strengthens.
