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标题: [CommSec Research]Investor Signposts: Week Beginning May 1 2011 [打印本页]

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作者: dyno    时间: 2011-5-2 21:06
标题: [CommSec Research]Investor Signposts: Week Beginning May 1 2011

Important Information

The summary and attached report has been prepared without taking account of the objectives, financial situation or needs of any particular individual. For this reason, any individual should, before acting on the information in this report, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice. In the case of certain securities Commonwealth Bank of Australia is or may be the only market maker.

Investor Signposts: Week Beginning May 1 2011

Upcoming economic and financial market events

Australia

May 2   TD securities inflation gauge (April)   Key indicator ahead of the Reserve Bank Board meeting

May 3   RBA Board meeting                       Interest rates are firmly on hold

May 5   Building approvals (March)              Approvals may have lifted 5pct after the 19pct fall in the prior two months

May 5   Retail trade (March)                    We tip a 0.5pct rise but could be inflated by the late timing of Easter

May 6   RBA Statement on Monetary Policy        The RBA’s quarterly economic assessment

Overseas

May 2   US ISM manufacturing (April)            The manufacturing sector continues to drive the economic recovery

May 3   US Factory orders (March)               A healthy 1.5pct rise is tipped

May 4   US ISM services (April)                 A small lift from 57.3 to 58.0 is expected

May 6   US ICSC Chain store sales (April)       Consumer spending makes up 70pct of US economic growth

May 6   US Non-farm payrolls (April)            Private payrolls are tipped to rise by around 200,000

The big picture

• The “inflation reporting” season is over for another quarter and the one clear underlying trend is that the inflation bogy will dominate market action over the next few months. The surge in both headline producer and consumer prices, suggests that inflationary pressures will be the hot button issue for the Reserve Bank over the midterm.
• The impact of the natural disasters earlier in the year is now filtering through in terms of higher food and vegetable prices, while the surge in global oil prices is also having a compounding effect on effect on domestic fuel prices. Unfortunately both these components are areas that the Reserve Bank cannot control, but no doubt the concern for policymakers is if the higher inflation readings become entrenched and feed through the economy.
• At present the risk of a considerable rise in inflationary expectations is relatively mild, largely due to the lack of consumer spending and weakness in an array of sectors. However as the economy ramps up in the second half of the year, these risks will heighten. Interestingly the difference between the rise in final producer prices (business inflation) and input prices highlights how domestic businesses have been absorbing rising costs. In fact the difference between the cost of raw materials and final selling prices contracted by 2.9 percentage points in the year to March – marking the largest contraction in two years.
• More importantly the underlying measures of inflation seem to suggest that the Reserve Bank does have a bit more time before needing to jump on the rate trigger. The annualised reading on underlying inflation posted at 2.3 per cent - suggesting inflation is still comfortably at the lower end of the Reserve Bank’s target band of 2-3 per cent. Added to which the ongoing strength of the Australian dollar will ensure that the price of imported goods continues to slide in part offsetting domestic inflationary pressures.
• Overall it is likely that the Reserve Bank is unlikely to be overly alarmed by inflation but certainly it will be more watchful in coming months. The Reserve Bank cannot afford to overreact to just one set of numbers, especially given that when you average the last two quarters underlying inflation was closer to 0.6 per cent a quarter. Added to which it is important to highlight that interest rates are already mildly restrictive while the high Australian dollar is also doing some of the work for the RBA in restraining inflation and economic activity.
• Having said that interest rates are still likely to rise once again by the end of the year. The rebuilding following the floods has the potential to add to inflationary pressures in terms of building costs together with the tight job market across the country. Also key will be the anticipated ramp up in business investment.

The week ahead

• The start of a new month once again ushers in another Reserve Bank Board meeting. And apart from the rates decision, there is a raft of economic data for investors to digest over the week.

• The Reserve Bank has left interest rates on hold for five consecutive months and once again it is unlikely that there will be any change in rates when it meets on Tuesday. However there will be a lot more focus by market participants on the accompanying statement to gauge how the Reserve Bank interprets the larger than expected rise in the Consumer Price Index and the continued strength of the Australian dollar. The key question is if the rise in inflation will bring forward any future rate hike.
• We would argue that the Reserve Bank should leave rates on hold and take more time to assess future moves given that domestic economic conditions are patchy and interest rate are already mildly restrictive. But no matter what action is taken, the Reserve Bank will have plenty of opportunity to explain its thinking when it presents its latest Statement on Monetary Policy on Friday.
• In terms of economic data, the Performance of Manufacturing gauge and the TD Securities monthly inflation gauge are released on Monday. Also on Monday the Bureau of Statistics will release data on house prices but more accurate private sector figures have already been released. The RP Data-Rismark Hedonic Australian Home Value index fell by 2.1 per cent in the March quarter – the largest fall on record.
• New home sales and the Performance of Services index are slated for Wednesday together with Bureau of Statistics price data for specific items like bananas. On Thursday, data on retail trade, building approvals are issued, while the Performance of Construction gauge closes out the week on Friday.
• The TD inflation gauge will be closely watched given it will be released ahead of the Reserve Bank Board meeting. The increase in the price of volatile items like fruit and vegetables, as well as rising petrol prices are starting to feed through to the headline result. However more importantly the TD core inflation reading has barely moved, holding between flat and 0.2 per cent higher in the past eight monthly readings.
• We expect that retail trade rose by 0.5 per cent in March after a similar 0.5 per cent increase in February. The one note of caution on the economic data is to beware the “Easter effect”. This year Easter occurred super late compared with last year coupled with a five day long weekend. Unfortunately seasonal adjustment programs find it difficult to account for the “Easter effect”, so it may result in super-strong results in March followed by a weaker result in April. Clearly it will be a case of adding the two months together to find out what is happening.
• And it is likely that building approvals bounced in March, rising by around 5 per cent, after the sharp 19 per cent slide over the first two months of the year. There is also the possibility of revisions to prior month’s figures given the impact of the wet weather conditions earlier in the year. Overall it is clear that there is underlying weakness in housing activity. Not only are building approvals plummeting but the all important private sector new house segment remains weak, with a 17 per cent slide in the annual growth rate.

• In the US, the spotlight shines brightly on the employment (non-farm payrolls) data to be released on Friday. The job market is clearly picking up with new claims for unemployment insurance sliding. On average economists expect employment to have risen by a healthy 198,000 in April after gains of 216,000 in March. But the jobless rate is expected to remain high near 8.8 per cent.

• Of the other indicators, the ISM manufacturing index and construction spending are released on Monday. On Tuesday domestic vehicle sales and factory orders are issued. And on Wednesday the ADP private sector employment report is released together with the ISM services index.

Sharemarket

• The US profit reporting season begins to wind down in the coming week but there is still around 65 companies from the S&P 500 that are expected to report earnings. On Monday FMC Corp and Chesapeake Energy are amongst companies to report. The bulk of the companies report on Tuesday with MasterCard, Pfizer, NYSE Euronext and CBS Corp all expected. On Wednesday Kelloggs, Time Warner, News Corp, and Metlife are slated to release earnings. While American International Group, Sara Lee and Visa close out the week on Friday.

• In Australia, three of the major banks report earnings over the week. ANZ reports first half results on Tuesday with Westpac to issue results on Wednesday and National Australia Bank to report on Thursday. Orica will also release its first half results on Monday while Rio Tinto holds its AGM on Thursday.

Interest rates, currencies & commodities

• Our currency strategists have upgraded their forecasts for the Australian dollar – and with good reason given the growing concerns about US fiscal imbalances, the structural decline in the US dollar and the sustained boost to Australia’s terms of trade. The CBA strategists are tipping the Aussie dollar to hold around US108 cents in June, US112 cents by September and US104 cents by the end of the year. The decline in the latter part of the year is largely based on the likelihood that the US Federal Reserve will eventually remove stimulatory measures and tighten monetary policy as the economic recovery becomes fully fledged.

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