Wednesday, November 3, 2010

Westpac : Key Data Previews

NZ Q3 wage growth

Nov 2, LCI pvt ord time – Last: 0.4%, WBC f/c: 0.6%
Nov 2, QES pvt ord time – Last: 0.6%, WBC f/c: 0.7%

  • Measures of employment in the QES will take on unusual importance this quarter, because recent volatility has tarnished the HLFS as the premier guide to labour market conditions. We expect filled jobs to register another low positive, similar to last quarter’s +0.5%.
  • QES average wages are expected to record another low positive read. Employment of low-paid workers depresses this measure of wages during recoveries.
  • LCI wage inflation could pop higher to 0.6%, because most workers get their pay rise in the second half of the year and the LCI is not seasonally adjusted. Right now is about the time LCI wage inflation can be expected to begin its long, slow grind higher.

NZ Q3 HLFS employment and unemployment
Nov 4, Employment – Last: –0.3%, WBC f/c: 0.3%
Unemployment – Last: 6.8%, WBC f/c: 6.7%

  • The HLFS has been on a wild ride recently. Unemployment plunged from 7.3% to 6.0%, before rebounding to 6.8%. Employment growth mirrored that pattern, rising 1% in Q1 before falling 0.3% in Q2. It is highly unlikely that this reflects reality. More likely, the survey is experiencing random volatility.
  • The broader suit of indicators suggest that the labour market has been tightening throughout 2010, but the pace of tightening has slowed.
  • We are forecasting another quarter of slow improvement for the third quarter. However, there is huge uncertainty around the data print on the day.

Aus RBA policy announcement

Nov 2, Last: 4.50%, WBC f/c: 4.50%, Mkt f/c: 4.50%, Range: 4.50% to 4.75%

  • The RBA kept rates unchanged at its Oct Board meeting, a surprise for Westpac and the markets. We had interpreted the Sep Board minutes as clearly indicating an intention to raise rates immediately. While reluctant to change our position that the best policy approach would be to hold rates steady until Feb, we could not ignore the clear signal. With no move in Oct, the tone of the Oct minutes was decidedly more dovish.
  • Expecting a soft Q3 CPI read, this more dovish tone allowed us to restore our ‘no change until February’ view; the CPI outcome gave us no reason to alter this view. The RBA will emphasise the significance of the mining boom and the need to pre-emptively act against associated inflationary pressures. But a new cycle-low for annual underlying inflation and growth no better than trend are not conducive to a Nov hike.

Aus Sep dwelling approvals

Nov 3, Last: –4.7%, WBC f/c: 1.0%, Mkt f/c: flat, Range: –2.5% to 4.0%

  • Dwelling approvals were much weaker than expected in August, recording a 4.7% fall after a flat July that seemed to mark an end to the 18.7% slide over the previous three months. The detail was also disappointing with a 4.3% decline in private sector house approvals, although another big 39.6% drop in public approvals reflects the continued wind-down in activity associated with a large round of social housing construction and won’t be repeated.
  • Private sector activity is now tracking new finance approvals for construction more closely. These suggest private approvals should start to stabilise in coming months. Assuming no surprises from public sector activity, which remains something of a wildcard, this should see total approvals rise slightly by about 1% in September, further softening the trend decline.

Aus Sep retail trade

Nov 4, Last: 0.3%, WBC f/c: 0.7%, Mkt f/c: 0.5%, Range: flat to 0.7%

  • Retail sales rose 0.3% in August, a subdued monthly result. Upward revisions lifted the trend trajectory a little to 0.5%mth – better but still disappointing compared to previous upturns. The detail was also disappointing with all of the strength for the second successive month in spending in cafes and restaurants which posted a further 1.5% rise in August after an extraordinary 5.1% jump in July that seemed due to spending associated with the popular Masterchef series. Retail sales ex cafes and restaurants rose just 0.1%mth in both August and July.
  • Conditions should have improved a little in September. Consumer sentiment remained positive with the detail hinting at some easing in spending restraint. Overall, we expect a 0.7% rise in September sales with strength likely to rotate from cafes and restaurants to housing-related spending.

Aus Q3 real retail sales

Nov 4, Last: 0.8%, WBC f/c: 0.8%, Mkt f/c: 1.1%, Range: 0.5% to 1.4%

  • Real retail sales rose 0.8% in Q2, although the estimate will likely be nudged up to around 1% once upward revisions to the monthly sales data is incorporated. This is considerably better than the previous three quarters which saw a flat Q1 (+0.1%qtr) and an uneven H2 to 2009 that averaged gains of just 0.2%qtr.
  • Q3 should see a continuation of the improved track for real retail sales. Nominal sales will be up about +1.5%qtr and although prices are likely to have been somewhat firmer, discounting remained aggressive, particularly amongst food retailers and department stores. Overall we expect a 0.7% rise in prices in Q3 (vs +0.4% in Q1 and +0.1% in Q4) with another solid 0.8% rise in Q3 retail sales volumes.

Aus Sep international trade balance, AUDbn

Nov 4, Last: 2.35, WBC f/c: 2.75, Mkt f/c: 2.00, Range: 1.29 to 3.00

  • The trade surplus rose $603mn in Aug to $2.346bn. Exports fell 2.4% in Aug but weakness was concentrated in a price-led correction in iron ore from prior strength and volatile gold. Imports fell 5.1% as a 2.5% AUD/USD rise dented prices, with weakness concentrated in three volatile items (aircraft, fuel and ‘other’ merchandise goods).
  • A 4.3% AUD/USD jump saw the A$ RBA non-rural commodity price index fall 2.7% in Sep. But port data implies a solid rise in iron ore volumes, partially offset by softer coal volumes, for a net 2.4% non-rural vol rise. But with prices down and a 0.1ppt SA drag, we f/c –0.5% for non-rural exports. But total exports are f/c to rise 2.6%, with offsetting strong rural (price & vol) gains and a rebound in gold. Merchandise import data implied a 2% rise (vols up with A$ a price-dent), but from a downwardly revised Aug level (1% rise without revision).

US Oct ISM factory and non-manufacturing reports

Nov 1, Factory Last: 54.4, WBC f/c: 54.8, Mkt f/c: 54.0
Nov 3, Non-manufacturing Last: 53.2, WBC 52.5, Mkt f/c: 53.5

  • • The factory ISM jumped to a new cycle high at 60.4 in Apr, but since then has fallen back to 54.4 in Sep, indicating a slowing pace of industrial growth. Regional business surveys so far in Oct have generally been stronger – the NY Fed outperformed but Richmond, Philly and Dallas also posted gains, including in their component detail. Given that the ISM is a composite of its key activity components, those regional surveys suggest that the ISM edge higher again – more evidence that the mid 2010 industrial slowdown has thus far been moderate.
  • The services ISM began falling from its 2010 peak of 55.5 in June, but reversed much of Aug’s decline in Sep. Given ongoing cutbacks in state government spending, constrained consumer discretionary spending and weak construction, we expect the downtrend to resume in Oct with a decline from 53.2 to 52.5.

US FOMC meeting – time for QE2

Nov 3

  • No question that the Fed funds target remains at 0–0.25%.
  • Recent communications from Fed officials from Chairman Bernanke down makes it clear that the Nov meeting will see a further round of quantitative easing announced, given that the economic data, whilst not recessionary, have not improved enough to lessen the prospect of an extended period of too low inflation and too high unemployment.
  • But there will be debate – some FOMC members have argued, both at the Sep 21 meeting and publicly, that further QE would be appropriate only “if the outlook worsened and the odds of deflation increased materially”. That has not happened yet.
  • Key issues: How much (we think $1.5trn)? Announced all at once or in tranches over time? Numerical targets for growth/ jobless rate/ inflation? How many dissenters?

US Oct non farm payrolls to rise just 20k

Nov 5, Payroll employment: Last: –95k, WBC f/c: 20k, Mkt f/c: 60k

  • Payrolls fell 95k in Sep. Private jobs rose 64k but 77k Census workers were laid off as well as a further 83k state/local govt jobs due to budget constraints forcing administrators to cut back on services. On an ex Census basis, payrolls fell 18k; Sep was the first month that ex Census payrolls have fallen since January 2010. Only 6k Census workers remain.
  • Slow GDP growth (1.1% annualised in Q3) will constrain jobs growth. Weekly initial jobless claims remain around 450k, consistent with sluggish payrolls growth. Small business hiring intentions fell in Sep. Consumer confidence in the job market fell further. But regional factory surveys found more jobs.
  • We expect sluggish 50k private payrolls growth, but another 30k government jobs lost, for a 20k overall gain.

Bank of England and European Central Bank decisions

Nov 4, BoE rate: Last: 0.50%, WBC f/c: 0.50%, Mkt f/c: 0.50%
Nov 4, ECB rate: Last: 1.00%, WBC f/c: 1.00%, Mkt f/c: 1.00%

  • Debate continues at the BoE about how much stimulus remains appropriate. The Oct meeting saw a three way split with one voting for a rate hike, one wanting a further £50bn of asset purchases (to £250bn) and the remaining seven favouring on hold rates and the asset purchase program held at £200bn. That said, strong Q3 GDP growth may embolden the hawks and there is some risk that the Bank’s quarterly reworking of its forecasts in Nov might prompt a larger minority to support modest retightening.
  • The ECB remains firmly on hold. Recent data showing (just) positive money supply growth; the surprising ongoing upswing in business surveys, and solid orders and production data mean the ECB is firmly on hold but plenty of downside risks remain, meaning the prospect of European monetary policy retightening is still remote.

Full report: Westpac : Key Data Previews

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