On Wednesday data on producer prices and retail sales are released together with the minutes of the last Federal Reserve policy meeting on October 23 and 24: Economists tip a benign 0.2% lift in core producer prices (excludes food and energy) and tame lift of 0.2 % in retail sales (ex-autos, up 0.6%). Retail sales soared by 1.1% in September, so the more modest gain won’t signify that the economy is losing momentum.
On Thursday, the October data on consumer prices is released together with the usual weekly jobless claims data and influential regional surveys – Empire State index and the Philadelphia Fed index. Core consumer prices may have lifted at a 2% annual rate in October – of little worry to either policymakers or investors.
And on Friday industrial production figures are released in the US together with data on capital flows. A modest 0.2% lift in production is tipped in October after a 0.4% gain in September.
Sharemarket, interest rates, currencies and commodities
We have assessed economist interest rate forecasts for the monthly Reserve Bank Board meetings over 2012.
Overall the track record has been reasonably good, with most groups correctly tipping around seven out of the 10 monthly Reserve Bank Board results. There are few standouts amongst the forecasters – either forecasting outperformers or underperformers. Probably the best track record this year has been by ANZ, but not markedly so compared with other forecasters. Further, at the start of the year it had tipped a 4.00% cash rate by end year, so clearly it is fallible along with other economic groups.
And while no economic group can claim forecasting superiority, financial market pricing isn’t always accurate either. The “market implied chance” – a financial market indicator showing the chance of an interest rate movement was over-optimistic about the chance of an interest rate cut in both February and November and underestimated the chance of a rate cut in May. Certainly the indicator underestimated the scale of the cut (50 basis points) in May and also had not fully priced in at least a 25 basis point cut just ahead of the rates decision.
The impressive rally in a key measure of shipping costs has come to an end. The Baltic Dry freight index, which includes freight costs for commodities like wheat and iron ore, has fallen almost 15% since peaking on October 23. From mid-September to late October, the Baltic Dry index had lifted by almost 68% after falling by 43% from early July.
Clearly it has been something of a roller-coaster ride, and this may also suggest that the Reserve Bank’s newfound optimism on the global economic will be tested. As always it is a combination of supply and demand factors – supply of ships has risen but demand for commodities hasn’t kept pace.
Craig James is chief economist at CommSec.
