Thought this might be of interest.
Attached is our weekly economic and market report which looks at the key events of the last week and the outlook.
While global economic news over the last week has generally been positive, Australian economic data has been somewhat mixed with weak data for retail sales and building approvals.
In the US, while a private sector jobs survey disappointed market expectations, the combination of the hiring of Census workers, a rebound after bad weather in February and other surveys pointing to rising underlying employment growth suggest that payrolls will have increased in March, although maybe by not as much as some might be forecasting. Moreover, if history is any guide the big surge in company profits over the last year points to strengthening US employment ahead.
Australia looks set to get a massive boost to national income from higher iron ore and coal prices. BHP and Rio are looking like getting a near doubling in iron ore prices under new quarterly price contracts. If sustained this would provide a $25bn boost to the value of annual iron ore exports. This will be further boosted by higher coal prices which could provide an additional $15bn or so boost to national income. Together this is equivalent to about 3% of GDP. The associated tax revenue would likely add to the case that the Budget will be back in surplus well ahead of the current projection for 2015-16, probably by 2012. And while Australia's trade deficit worsened to $1.9bn in February on the back of lower gold and coal exports a circa $3.3bn a month boost to iron ore and coal export earnings on the back of higher prices indicates that we are likely to see a return to trade surpluses some time from April.
In Australia in the week ahead, the focus will be on the Reserve Bankís interest rate decision on Tuesday. Our assessment is that the RBA should hold fire. Recent data for housing finance, retail sales and building approvals have all been soft and anecdotal evidence suggests that all the talk about rate hikes is having a dampening impact on the economy and so with inflation expected to remain under control we think the RBA can afford to wait another month or so before moving again. However, what I think the RBA should do and what it will do are not necessarily the same, and in terms of the latter the barrage of up-beat commentary from the RBA and the Governorís unprecedented appearance on TV to warn home borrowers against borrowing too much and that interest rates are likely to increase further, coming on the top of a strengthening labour market, strong house price gains and a likely big boost to national income from iron ore price increases suggests that the Bank will raise rates by another 0.25% on Tuesday. But itís a pretty close call.
Australian data for job ads and employment data for March will also be released with the labour force report likely to show a 7,000 gain in employment and unemployment remaining around 5.3%.
Head of Investment Strategy and Chief Economist
AMP Capital Investors