Below trend growth to continue
Australia: Solid employment gain expected on Thursday. NAB Business Survey and Consumer Confidence also released next week. NZ: RBNZ to temper its OCR outlook in Thursday’s Monetary Policy Statement. China: Trade figures, CPI and industrial production.
The unemployment rate rose from 6.0% to 6.4% in July, and although part of the rise was due to the ABS changing the definition of ‘actively looking for work’, it also reflected the softer labour market environment. The rise in unemployment is clearly concerning the RBA, so the labour force report will continue to be the most important economic release in coming months. For August, we expect to see a solid 25K increase in employment after the small 300 person decline in July, which should help to reduce the unemployment rate to 6.3% if the participation rate remains unchanged at 64.8%.
Also next week the NAB Monthly Business Survey for August is released on Tuesday, after the July survey showed an improvement in both conditions and confidence. Housing finance approvals for July are also released on Tuesday.
On Wednesday, the consumer confidence data for September are unlikely to show a large move. The weekly Roy Morgan series has been little changed over the past three weeks, but perhaps the monthly W-MI Sentiment series has some downside risk given the rising concerns over the labour market outlook.
We believe the RBNZ will temper its OCR outlook at Thursday’s Monetary Policy Statement. But deliver a statement that is too dovish and the Bank risks losing all initiative on term/retail interest rates, given the market’s recent leanings. Come across too hawkish, however, and it risks a credibility issue – given the less-exuberant growth indicators, and less-threatening inflation gauges, that have come to pass over recent months – not to mention a NZD reaction that exacerbates the negativity. We thus believe the RBNZ will try to steer a middle ground – delaying its next rate hike into early 2015 while still projecting a cash rate back to at least neutral (4.5%) by the end of the forecast period. In any case, expect the central bank officials to express increased discomfort with a NZD that’s failing to play ball with the terms of trade correction underway.
As for this week’s NZ data, we expect Monday’s June quarter manufacturing sales/stocks data to infer a 2% increase in the industry’s output, in order to finalise our Q2 GDP growth pick at 1.0% (4.2% y/y). Of the monthly (August) data on show; we are punting on +0.7% for Tuesday’s electronic card transactions; Friday’s PMI we’ll take as it comes (previously 53.0) while we are looking for the Food Price Index to slip a further 0.2%, as part of the 0.5% we have for the Q3 CPI (taking annual inflation down to 1.2%, from 1.6%).
Also keep an eye on the political polls throughout the week, given the fast-approaching 20 September general election.
The key monthly indicators are due next week, beginning with trade data on Monday. The Chinese trade surplus is expected to narrow to $40.6B in August from $47.3B in July, due to a combination of both slower export growth and faster import growth. Thursday’s CPI data are expected to show inflation still running near 2¼%, while Saturday’s releases are expected to show a very slight slowing in the annual rates for industrial production, retail sales and fixed investment.
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