The speech by the Reserve Bank governor should provide more interest. At this time there is no topic set for the speech, but if the governor wants to send a message – perhaps on the Aussie dollar, wage growth or views on the global economy – this will be the opportunity.
Also on Tuesday is another comprehensive release of census data. This data is of great value to anyone in business as well as all levels of government. And figures on imports for October are also issued – one of the timeliest economic indicators.
On Wednesday the Bureau of Statistics releases the State Accounts for the 2011-12 year – the comprehensive assessment on how the state and territory economies performed last financial year. The only disappointment is that the data isn’t released on a quarterly basis.
In the US, the week kicks off on Monday with the release of October data on existing home sales. After falling by 1.7% in September, economists expect only a modest lift in October with sales edging up from a 4.75 million annual rate to 4.76 million. The housing market is in solid shape. Inventories stand at six-and-a-half year lows while the median home price is up 11.3% on a year ago.
Also on Monday the National Association of Home Builders release their sentiment index with a lift from 41 to 42 expected in the November month.
On Tuesday the tack changes from existing homes to new home construction. Housing starts spiked 15% higher in September to four-year highs so economists believe that there will be a 2.5% correction in October.
Interestingly, permits also spiked higher in September, thus providing weight to economist views of only a modest retracement in October.
On Wednesday a clutch of indicators are scheduled ahead of Thursday’s Thanksgiving Day holiday. The usual weekly jobless claims data is issued together with updated consumer sentiment data and the October leading index. The leading index has moved in a zig-zag pattern over the past seven months but economists are hopeful that the 0.6% lift in September will be followed by a 0.2% increase in October. Such a result will provide confidence that the US economic recovery is on a solid footing.
Also on Wednesday, Markit will release the “flash” manufacturing gauge for the US while it will publish equivalent reports for China, France, Germany and the eurozone on Thursday.
And on Friday, economic growth figures are due in Germany alongside the influential Ifo business climate index.
Sharemarket, interest rates, currencies and commodities
In light of the Reserve Bank’s recent decision to leave rates unchanged, it’s worth taking a ‘big picture’ view of the current level of interest rates. It is rightly pointed out that Australia still possesses the highest interest rates in the developed world. But a key reason is because Australia has one of the fastest economic growth rates in the advanced world as well as possessing one of the highest rates of population growth.
Clearly that makes sense as the Reserve Bank needs to focus on Australia’s economic fundamentals – that is, essentially inflation – rather than international relativities.
Simply, Australia’s interest rates haven’t fallen as far as those in other countries because our economy is in better shape. But that doesn’t mean that our interest rates aren’t super-low on an historical perspective. The cash rate stands at 3.25%, just above the 3.00% low that existed from April-September 2009 and the lowest rate in almost 50 years (January 1960, 2.85%).
Similarly, the 90-day bill rate stands at 3.25%, just above the record low of 3.01% set on April 29, 2009. The three-year swap rate face by businesses stands at 3.15%, just above the record low of 2.85%. In fact, three-year fixed housing rates offered by major lenders are around 5.19% – the lowest rate offered in the 22-year history of data. And the 10-year swap rate stands at 3.73%, just above record lows of 3.53%.
It’s also important to note that current interest rates are actually hovering near record lows in real terms at present given that inflation was higher in April 2009 than it is today. Interestingly, while interest rates are clearly at historic lows, consumers and businesses aren’t keen to borrow. This is clearly new territory for the Reserve Bank where monetary policy doesn’t have the same potency as in the past.
Craig James is the chief economist at CommSec. Twitter: @CommSec
