The Experts Craig James from CommSec Economy Expert Investor signposts: week beginning 30 June 2013 Monday, July 01, 2013 The best measure of how the manufacturing industry is tracking would be the Performance of Manufacturing index (PMI), released by the Australian Industry Group and PricewaterhouseCoopers. The PMI is one of the timeliest economic indicators released in Australia, useful not just in showing how the manufacturing sector is performing but in providing some sense about where it is heading. Over the past year there has been an array of high profile job losses across the manufacturing landscape – a result that has been mirrored in the monthly PMI. Over the past few months the PMI has been holding near the lowest levels in four years and has confirmed that the manufacturing sector has been contracting for 15 consecutive months. In fact sub-indices like export orders are crawling of the weakest readings in records going back ten years. The main area of concern for the manufacturing sector has been the strength of the Aussie dollar was causing businesses to markedly re-assess the viability of on-going operations as well as strategic direction. However there may be glimmers of hope for the sector. While it is early days, key forward looking indices seem to have stabilised - new orders, employment and production are contracting at a slower pace. In addition the recent fall in the Aussie dollar - to the lowest levels in around three years - may just provide a much needed reprieve for the sector. Most manufacturers have been cutting costs to remain profitable and have been conducting business on a currency closer to parity against the US dollar. Looking forward the cheaper currency should help boost the competitiveness and profitability of the sector. The June PMI release on Monday will probably be too early to feel the impact of the lower currency but the next few months should fare better. The week ahead A new month and quarter begin and hopefully there is more optimism about the global economy. There are a number of “top shelf” indicators to be released in Australia over the coming week. Meanwhile the ISM manufacturing and services gauges and employment figures dominate in a holiday-shortened week in the US. In Australia, the week kicks off on Monday with the Performance of Manufacturing index, monthly inflation gauge and RP Data-Rismark Home Value index. The Performance of Manufacturing index crawled of a four-year low in May, and super low interest rates and a weaker currency could be the catalysts to engineer a further improvement in June. However a sustainable recovery will require stronger consumer spending and lift in the global economy. Also on Monday is the release of the monthly inflation gauge from TD Securities and the Melbourne Institute. The May reading showed annual inflation at the low end of the Reserve Banks 2-3 per cent target band. If inflationary pressures remain restrained in coming months it will leave the door open for another interest rate cut. The monthly RP Data-Rismark Home Value index is also released on Monday. The good news is that house prices are going sideways – effectively ensuring that the Reserve Bank would be less worried about a house price bubble given the low interest rate environment. Capital city house prices are up only 2.8 per cent on a year ago. On Tuesday the Reserve Bank Board holds its monthly interest rate setting meeting. And we expect the central bank to stay on the sidelines for the second consecutive month in July. The Reserve Bank has highlighted that they have plenty of scope to provide further rate cuts; however there are good reasons to wait before deciding the next move, especially with inflation data to be released in late July. On Wednesday the Australian Bureau of Statistics (ABS) releases the May retail trade series. It is now commonly acknowledged that this data is failing to pick up consumer spending trends as well as it has done in the past. The major problem is that it is failing to pick up the services sector. But the data is still useful as a guide to spending behaviour. Given the strength in the Commonwealth Bank Business Sales indicator we expect that retail trade rebounded by 1 per cent in May after rising by 0.2 per cent in April. May trade data is also released on Wednesday. After recording a modest $28 million trade surplus in April we expect the accounts to post a more solid $300 million surplus in May. On Thursday the Australian Bureau of Statistics will release the May building approvals data. To say that these figures are volatile borders on under-statement, particularly given the lumpiness of apartment approvals. In April new approvals rose by 9.1 per cent after falling by 5.5 per cent in March. We tip a 1 per cent fall in May. Importantly the outlook for the sector is far brighter. Lower interest rates, strong population growth, healthy employment, and pent up housing demand is starting to see the housing sector shake of the shackles and begin a much needed resurgence. In the US, the week kicks off with the release of the June ISM manufacturing gauge on Monday together with construction spending figures for May. The ISM index held below 50 in May, indicating a modest contraction of the manufacturing sector. But analysts tip the US gauge to rise from 49.0 to 50.2 in June. Construction spending is expected to have inched 0.6 per cent ahead in May. On Tuesday data on vehicle sales and factory orders are released together with the ISM New York business index. Factory orders are expected to have risen by 1.8 per cent, while vehicle sales in June are tipped to lift by 0.4 per cent to 15.3 million units. On Wednesday, the ISM services gauge will be released alongside the ADP national employment gauge and Challenger job layoff series. The ISM gauge is only expected to rise modestly from 54.2 to 53.7 and the ADP index should show 160,000 private sector jobs were created in June. But – as always – the highlight of the coming week is the release of the non-farm payrolls or employment data on Friday. The past few months have been encouraging with the housing sector supporting solid growth in US employment. Analysts expect that 175,000 jobs were created in June - in line with prior months. The jobless rate is expected to ease from 7.6 per cent to 7.5 per cent. In China the official manufacturing gauge and HSBC manufacturing index are released on Monday. Sharemarket, interest rates, currencies & commodities It has certainly been a rout on global bond markets ever since the US Federal Reserve announced that it will consider tapering its $85 billion month bond buying program. And Australian bond have not been spared the sell-off. In fact yields on Aussie 10-year government bond have surged by 60 basis points in the space of 4 trading sessions to over 4 per cent - the highest levels in around 15-months. Interestingly the driver of the sell-off in Aussie bonds and resulting higher yields, was largely due to the shift in US bond prices. However it does seem that investors have also sharply scaled back the likelihood of another cut in domestic interest rates in the face of a declining Aussie dollar. Interbank futures now showed only a 20 per cent chance of a cut from the Reserve Bank next week. While swap rates were implying just 20 basis points of easing over the next 12 months. Upcoming economic and financial market events Australia •July 1 - Monthly inflation gauge (Jun) - Key gauge of inflationary pressures •July 1 - RP Data/Rismark home prices (Jun) - Home prices have eased in the past few months •July 2 - Reserve Bank Board meeting - No change in rate settings is expected •July 3 International trade (May) - A modest $300 million surplus is expected •July 3 - Retail trade (May) - The CommBank BSI points to stronger growth •July 4 - Building approvals (May) - Apartment building is leading the way Overseas •July 1 - US ISM manufacturing (Jun) - Economists tip a rise from 49.0 to 50.2 •July 2 - US Vehicle sales (Jun) - A modest lift to 15.3 million units is expected •July 2 - US Factory orders (May) - A healthy 1.8 per cent rise in orders is expected •July 3 - US ADP employment (Jun) - Private sector jobs probably rose by 160,000 •July 5 - US ISM services (Jun) - Expectations are for the gauge to rise from 53.7 to 54.2 •July 5 - US Non-farm payrolls (Jun) - Analysts expect that jobs rose by 170,000 "This report contains general information only and does not take into account your objectives, financial situation or needs. Therefore, before relying on this information, you should consider your own personal circumstances and seek professional advice. Please click here pivotalplanning.amp.au to find out more about our financial advice services."
Posted on: Fri, 05 Jul 2013 01:43:50 +0000
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