Kohler's Week: Holidays, the market, resources, banks, the wrong pig, Trump, the Fed

Last Night

Dow Jones, up 0.7%
S&P 500, up 0.4%
Nasdaq, up 0.4%
Aust dollar, US76c

What we did on our holidays

Come to think of it, there’s quite a good movie with that name, starring Billy Connolly. Billy's an old bloke who dies on the beach while playing with his three grandchildren, having jokingly told them he’d like to be buried like a Viking – that is, burnt in a boat, at sea. So that’s what they do: build a raft, put him on it, set fire to it and push it out.

Naturally all hell breaks loose back at the house, when they tell their parents.

Anyway, Connolly makes an excellent speech to the eldest child at one stage (imagine it in his Scottish accent): "I realised there was no point in being angry with people I loved for being what they are. I mean, so what if your dad is a complete and utter bloody shambles? Or your Uncle Gavin’s a bit of a tight-arse? All that social climbing! He can't help himself any more than his wife can help being scared of her own shadow or your mum can help being a bit mouthy. The truth is, every human being on this planet is ridiculous in their own way. So we shouldn't judge and we shouldn't fight, because in the end… In the end, none of it matters, none of this stuff.”

I like that little speech, and because of it, the movie, because it’s how I’ve always tried to live. My life-long maxim, which I keep trying to impress on my kids, is three words: Not Much Matters. That is, most things don’t matter; only a few things do.

Anyway, what did I do for three months? Not much. Didn’t go overseas, except for Tasmania, where we spent a few days at David Walsh’s Museum of Old and New Art. Fascinating place and well worth a visit.

We spent some time at the beach. Slept in. Mooched around. Apart from that I tried to write a novel – I extended that first chapter I wrote for the book club annual dinner last year and included in one of these Saturday emails. It’s about half done now, which is OK. If it gets finished, and published, I’ll send you a copy if you want. If it doesn’t maybe I’ll just serialise it on Saturdays.

But it was an excellent break, and much needed, so thanks for letting me have it (not that you had much choice, I suppose!). Now, let’s have a look at what’s been happening while I was away.

The market

I said on the ABC news on Monday – my first day back – that I’d heard there had been some excitement on the sharemarket while I was gone, but when I looked that morning, the index was almost exactly the same as it was three months ago. So obviously nothing happened! It was all a dream.

Here’s a chart of the ASX200 since December 18, when I went on leave:

It’s basically back to where it was – rally in late December, vicious correction in January, recovery in March.

And here, for perspective, is a 10-year chart of the ASX200 index:

The 10-year capital gain from the Australian sharemarket is zero. The accumulation index (including dividends) has returned 4.8 per cent compound over the same 10 years, which is the dividend yield.

The big rally of January/February last year has been lost and there has been zero return from ASX stocks, including dividends, for about 18 months, after a very good three years of 17 per cent per annum, compound. But that zero is an average between a 28 per cent gain by industrials and a 33 per cent decline by resources. Banks have returned smack in the middle – roughly zero.

Resources have seen capital losses every year for five years, and small caps (the small ordinaries index) have been jogging on the spot for almost five years, although as always with small caps, it depends on the company – the index is meaningless. Big ones more often tend to move together, at least in big clumps; small caps each do their own thing.

The key lesson of the past three months is an old one: don't be swept up in either doom and gloom or euphoria, even if it seems convincing, but make your own mind up. Also don’t make big decisions during extreme sentiment. Usually the best decision at those times is to do the opposite of everyone else, but that’s very hard, so best to do nothing. At the start of 2016 there were wild stories about how terrible everything was and how it was the worst start to a year in the history of the universe or something. Well, now most of the losses have been recovered.

Where to from here? Well global markets are still very much in “don’t fight the Fed (or ECB, or BoJ)” mode and were buoyed by this week’s statement, which was “dovish”, on which more later – that is, the forecasts of the members of the Federal Open Market Committee now imply two rate hikes this year instead of four and their median forecast for inflation has been cut from 1.6 to 1.2 per cent. But then again, these are just forecasts, and we all know what forecasts are worth, don’t we?

Europe and Japan have moved from zero to negative interest rate policy (NIRP to ZIRP) which is more puzzling than bullish, and Australia is stuck at a 2 per cent cash rate and will be for most of this year.

I will continue to report on the macro influences on “the market”, but I don’t really believe in it. There’s not a single sharemarket any more than there’s one property market, or one global bond market. Each state and each government bond is different, and each stock on the ASX is different, although there are two sectors that can generally be clumped together: banks and resources. As we’ve seen with CBA’s chronic problems with its culture being exposed by the excellent Adele Ferguson, there are differences within those two sectors as well, but it is mostly relevant to discuss them as a group.


This is my main message as we begin 2016 (albeit a bit late): it’s time to look at resources stocks. This sector has led the rally since late January (up 25 per cent versus 5 per cent for the banks, 9 per cent for industrials and 6.7 per cent for the ASX 200). The rally may have only just begun. There are three reasons for that:

1. They’re cheap. After a brutal five-year bear market, resources stocks are priced for Armageddon. Look at this chart:

NAV stands for net asset value. The chart shows premium/discount to average NAV, and as you can see, in January they were selling at a discount of 40 per cent (which would be a bit less now). Only once before have resources stocks been cheaper, and that was during the second worst crash and depression in 100 years.

So far gold stocks have been the big winners, with a 56 per cent rally in the gold index (XGD) since the start of December. Barry Dawes of Paradigm Securities says the XGD is “ridiculous” because it doesn’t really reflect the Australian industry, but includes a lot of locally listed foreign producers. He presents this chart to support that view:

The Australian dollar gold price is up 27 per cent this year. Barry says the main significance of this graph is to show that the true low for Aussie gold stocks was June 2013. “Most major gold sector indices overseas did not make their post-2011 lows until January 2016 and in my considered view it has not just been the Australian dollar gold price that has been driving our Terrific Ten.”

Of course this chart suggests that the bull market in the Aussie gold sector is pretty long in the tooth now, but unless you are a huge AUD bull and think the currency is going back above US80c and beyond, you’d have to say there’s more to come here.

But the more important question is whether the strength in the iron ore price – up 30 per cent since January 1 – is sustainable. I think it probably is, although that depends a lot on the next item…

2. China probably won’t crash. I assert this with slightly less conviction than my resources call, because of the amount of leverage in the system there – debt-to-GDP ratio is 308 per cent – and the lack of transparency. We really don’t know what’s going on. What’s more the authorities have made it clear they’re content to let debt continue to grow rather than crimp economic growth. The flip side of that is we can have some confidence in the National People's Congress five-year plan growth target of 6.5-7 per cent, issued earlier this month.

Industrial production is slowing – down to 5.4 per cent in January/February – but investment is accelerating. The main reason for my China optimism, apart from the sheer size of the place and the fact its modernisation and industrialisation still have a long way to run, is something that hasn’t had a lot of publicity – “One Belt, One Road” (OBOR). This is President Xi Jinping’s massive regional infrastructure play, based on the Asian Infrastructure Investment Bank, and comprised of two schemes: the land-based Silk Road Economic Belt and the oceangoing Maritime Silk Road.

Estimates of the money to be spent developing these two attempts at regional domination, or at least influence, by the Chinese range up to $US1 trillion. The amounts of steel needed for it will be colossal. As the Chinese economy transitions from heavy export industry to domestic demand and services, the acronym OBOR will become increasingly important to Australia.

Not that China itself is unimportant, mainly because the plan of BHP, Rio, Vale and Fortescue to drive small unprofitable Chinese iron ore producers out of business seems to be working.

Even though the iron ore price has fallen because of increased supply, China’s demand has continued to grow while its domestic supply has fallen. When the price recovers, as it will, Rio, BHP and Fortescue (and Gina Rinehart) will make a lot of money.

3. Mad money. This is perhaps the most important thing of all: we have the lowest official interest rates in history around the world not because of an economic depression, or even recession, but because inflation is low. The Fed made that clear in its statement on Wednesday: its focus, and that of the ECB and the BoJ and the RBA is on getting inflation up to 2 per cent, even though inflation is low for reasons other than tight monetary policy.

This is profoundly important. Economic growth is fine, more or less, but central banks are stimulating like crazy to get inflation up, even though they aren’t responsible for the low inflation (it’s caused by commodity gluts, too much debt, low wages and technology), and it’s decidedly unclear whether they will succeed in getting inflation up, as the frustration evident in Wednesday's Fed statement implied.

There was an interesting comment on this subject by Jim Grant in a recent Grant’s Interest Rate Observer:

“It used to be said that the gold standard had a deflationary bias, the pure paper system an inflationary one. We deem this a slight mischaracterization. Gold had a bias towards the stability of prices over the long run. Equally, paper has a bias towards credit creation, which is deflationary, over the medium and long run. Whether the final resolution of the world’s desperate debts will take an inflationary or deflationary course remains to be seen. Inflation remains our bet.”

So debt is deflationary; low interest rates are inflationary. Which of them will end up winning? Maybe neither. That’s the point – so far excess debt and monetary stimulus have fought a nil-all draw and that could go on for a long time: central banks are trying to get inflation up to 2 per cent, while the credit creation they are facilitating suppresses it.


As I’ve observed before, Australia’s banks are basically giant building societies now – most of their business involves lending on housing, whether it’s to individuals or businesses. It’s largely a deliberate strategy by the regulators to reduce system risk, but it means their prospects are entirely tied to the value of Australian houses. And there’s not much doubt that houses are overvalued, although that doesn’t necessarily mean there will be a crash.

According to Shane Oliver of AMP Capital, the median multiple of house prices in cities over 1 million people to household income is 6.4 times in Australia versus 3.7 in the US and 4.6 in the UK. In Sydney it’s 12.2 times and Melbourne is 9.7 times. Also, the ratios of house prices to incomes and rents are at the high end of OECD countries and have been since 2003.

So bank assets are intimately connected to house prices and it’s clear that houses are overvalued on any measure. The boom appears to be just about over and house prices are now likely to fall, possibly by as much as 10 per cent. A bigger correction in house prices, and a recession, are possible, but not likely in my view.

What does that mean for bank share prices and dividends? That it’s not 1992 again but nor is it 2003 or 2011 again, when the banks had two very big bull runs. The banks have had a good March so far, but the downtrend that started exactly a year ago, and has so far wiped out about four years’ worth of dividends, remains intact. I think it has further to go – a bit further if there’s only a small correction in house prices and no recession, or a lot further if there’s a big fall in house prices and a recession.

The wrong pig

Charles Gave had a nice item in Gavekal this week headed “We Are Killing The Wrong Pig”. It refers to when Winston Churchill was apparently watching the endless columns of the Soviet Red Army during the victory celebrations in 1945, and turned to an aide and muttered: “I’m afraid we killed the wrong pig.”

Gave is using the analogy to refer to modern monetary policy, which he says is “taxing to death poor retirees and their pension funds – retirees who spent a lifetime scrimping and saving in the hope they would accumulate a small pot of money to ensure their last years on this earth would not be too uncomfortable.”

Regular readers will know this is a subject close to my heart. Central bankers are robbing savers, especially retirees, in order to benefit bankers and their debtors in the hope that this leads to more economic activity and reflation. Gave says it is an echo of Lord Keynes’ enthusiasm for “euthanasia of the rentiers”, which is based on the idea that rentiers have a preference for liquidity. If they are “euthanised” then that should lead to less liquidity and a higher velocity of money, which solves the problem of a contracting economy.

Gave says the central bankers are living in the past – killing the wrong pig. “The real rentiers of today are not ordinary bond-holders saving for their retirement, but the likes of Apple, Microsoft and Google – multinational corporations who together hold trillions of US dollars in cash in offshore tax havens, and who have absolutely no idea what to do with these sums.”

The solution, he says, is to pass legislation stipulating that companies can distribute dividends to shareholders tax free and that retained earnings are taxed at 100 per cent.

Interesting idea. Won’t happen, of course, but actually … think about Australia. Dividends here are taxed at a discounted rate (franked) and the result is very little in the way of retained earnings. Companies are paying out three quarters of their profits, and that may be why quantitative easing hasn’t been needed here. American, European and Japanese companies are retaining most of their earnings, with the result that those countries’ central banks are having to print money to make it up.

So the Australian experience suggests that they don’t have to make dividends tax-free – just don’t tax them twice. Dividend imputation is enough, and if Charles Gave is right, the world’s problems would be solved because Apple, Google,Microsoft and the others would start spewing cash, instead of the central banks.


Throughout my time off I watched in horrified fascination what’s been going on in the American presidential election process, along with everyone else in the world. As a result there are a few links about Donald Trump and US politics in Readings & Viewings below. But this is such a big deal, it’s worth a separate item as well. Even Christopher Pyne says Trump is terrifying, and he clearly represents a significant investment risk for us all.

One of the best things I read was Martin Wolf’s piece in the Financial Times earlier this month headed “Donald Trump embodies how great republics meet their end”, in which he compares what’s happening in the US to the end of the Roman Empire (which has been done before, admittedly).

On this subject, my friend Percy Allan sent me this graph the other day which more or less sums up why Trump exists:

As Percy says: “America’s wealthy donor class captured Congress by building a populist middle class political base which it thought favoured self-reliance, small government and low taxes.

But now it’s discovered that this largely white base (whose real average wages have stagnated for 40 years) is anti-free trade, anti-immigrant, pro-welfare state and wants a national socialist as its leader.”

Martin Wolf wrote: “It is rash to assume constitutional constraints would survive the presidency of someone elected because he neither understands nor believes in them. Rounding up and deporting 11 million people is an immense coercive enterprise.”

As I write, it’s still hard to believe that such a dangerous charlatan could become Republican nominee let alone beat Hillary Clinton for the Presidency, but this is a rapidly developing story and anything seems possible.

And whatever happens, Trump has changed America. If he wins, it will be for the worse (much worse). If he loses, maybe it will be for the better, since the Republicans, and the rest of America’s ruling classes, will have had a terrible shock and will wake up to themselves – and deal with the inequality that has led to Trump’s ascendancy.

The Fed

A final note on the Fed meeting this week: don’t for a moment think the statement means no rate hikes this year, because of Donald Trump.

This is shaping up as the most contentious US Presidential election since 1968, when both Martin Luther King Jnr and Robert F Kennedy were assassinated, with race riots and protests against the Vietnam War, when Richard Nixon popularised the term “silent majority” (Trump’s constituency as well). The Democratic convention was the scene of violent anti-war protests and the Democratic Party split into multiple factions, ensuring that its candidate, Hubert Humphrey, would lose. George Wallace ran as an independent candidate and carried a few southern states.

The last thing the Fed would want is financial market turmoil around the same time as the election. That means the most likely time for a rate hike is ASAP, even though Thursday’s statement was “dovish” and taken to mean lower odds of an imminent hike. In fact, I think the data will force the Fed to act sooner and raise rates faster than the market now expects.

If I’m right, the Australian dollar is heading into the 60s before year’s end.

Readings & Viewings

Perhaps a few more items than usual this week, because it’s three months of reading rather than a week.

My novel is mainly speculation about artificial intelligence. Here’s a review of some books that explore what’s at stake.

Um, you know my daughter Phoebe got married in December? Well someone recorded my father of the bride speech and put it on the internet. Son Chris is MC. Here it is (11 minutes).

This is my video interview with Professor Kate Drummond, neurosurgeon. She’s great.

So much is uncertain about this Australian election, the timing of it is the least of our worries.

Stan Grant’s Australia Day speech was pretty good, and made a splash. It’s a while ago now, but in case you missed it – here it is.

As mentioned, my only trip while on leave was to MONA in Hobart. Here’s a pretty interesting story in the AFR about David Walsh, that I read when I was there (it’s from 2012).

Brexit or not, we’re not safe from Grexit yet.

Economic growth isn’t over but it doesn’t create jobs like it used to.

The doomsayers are wrong – our debt is well-regulated, and sound, says Stephen Koukoulas.

Thomas Piketty: there needs to be a new deal for Europe.

And Piketty on the rise of Bernie Sanders.

Some stuff about Trump etc:

Donald Trump Is Shocking, Vulgar and Right - And, my dear fellow Republicans, he's all your fault.

Obama’s speechwriter wrote Donald Trump’s victory speech.

What Alexander Hamilton would have to say about Trump.

Thirty Trump supporters explain why they’re voting for him.

This is incredible – the difference between Trump’s free media coverage and the rest.

What Trump is really like: his campaign workers’ contracts forbid any criticism of him for the rest of their lives.

This bloke says: I didn't think a Trump campaign could damage American democracy. I was wrong.

Bernard-Henri Levy places the Donald in the context of a politics perfected by Silvio Berlusconi and Vladimir Putin.

Violence is scary, but violence as ideology is terrifying. That’s where Trump’s campaign has gone.

It’s not just Trump – authoritarian populism is rising everywhere in the west.

Krugman: the geometry of progressive Trumpism.

This is perhaps my favourite piece on Trump. It explains why he’s popular - by Thomas Frank. Terrific article.

And finally, Larry Summers weighs in on Donald Trump.

Simon Johnson, former chief economist of the IMF, argues that blockchain technology could mean the end of big banks.

A lovely piece in Quadrant about the man who taught me how to write – PG Wodehouse – and his creations, Bertie and Jeeves.

Indiana Abbott and the Last Crusade. Some has put a lot of effort into putting Tony Abbott’s face onto Indiana Jones. It’s funny! Lighten up!

City of Amsterdam – data driven transformation towards a low carbon energy future.

Why counter-factual TV shows are taking off.

Is innovation over?

One of the nicest things ever written about growing older.

On the ethics of drone warfare.

The unbearable asymmetry of bullshit

Wonderful video of a 13-year-old kid playing Rhapsody in Blue on a harmonica – magnificent.

Nice little video of a polar bear with her cubs. Cute!

Three very funny “oh shit” videos.

This is shocking: a series of before and after pictures of Queensland's drought. You move the cursor across the pictures and they change, horribly.

There’s plenty more, but I’ll save them for next week I think.

Finally, happy birthday to the fabulous Wilson Pickett. He’d be 75 today, but he died 10 years ago. Here he is doing “Everybody Needs Somebody”.

It was also the birthday yesterday of Jerry Cantrell, the guitarist, singer, and songwriter of Alice in Chains, a remarkably good band.

And happy birthday Wyatt Earp, 168 today. He died in 1929 at the ripe age, for those days, of 80.

Last Week

By Shane Oliver, AMP

The recovery rally continued over the last week helped by a combination of the Fed further delaying interest rate hikes and mostly good economic data. This saw most share markets rise for the week, with US shares now back around where they started the year (after being down 10.5 per cent year to date). The Fed’s more dovish interest rate outlook also saw bond yields fall and helped drive the US dollar lower which in turn drove commodity prices higher which along with a fall in unemployment saw the Australian dollar push above US76c.

A lot of the worries on the worry list from early this year have faded: the Chinese Renminbi has stabilised; the US dollar has stopped rising; the Fed has become more dovish; fears of a US recession have faded with some better manufacturing data; oil and commodity prices have moved higher; credit spreads have narrowed a bit as fears of significant corporate defaults have receded; and concerns about China have settled a bit following indications it will provide more stimulus support. And of course in Australia, the economic news has been okay.

The Fed turns even more dovish. While the Fed continues to see moderate growth in the US, the key was that it acknowledged ongoing global and financial market risks and as a result lowered its so-called "dot plot" of meeting participants' interest rate expectations to show just two 25 basis point rate hikes this year down from four. In addition Fed Chair Janet Yellen signalled a greater willingness to tolerate upside surprise on inflation as opposed to seeing it continue to run below 2 per cent. The Fed appears to have no inclination to hike at its April meeting, but a June hike does look like a reasonable base case, particularly given the recent upwards momentum in US inflation, but with only around a 55 per cent probability. And it is dependent on global threats and financial market turbulence continuing to settle down.

By continuing to indicate that it is conscious of global risks and that US rate hikes will be data dependent and gradual, the Fed is clearly indicating that it is not going to do anything to consciously threaten the global and US outlook. Critical here is the stabilisation/softness that we are now seeing in the US dollar which has helped reduce the threats of even lower commodity prices, a funding crisis in emerging countries and pressure on US manufacturers that would have flowed if the US dollar continued to rise. So the Fed's latest decision is supportive for shares and growth assets and should lead to an ongoing stabilisation in the value of the US dollar.

So while the Bank of Japan decided to make no changes to monetary policy just yet, we have now seen two of the developed world’s big three central banks move further in a dovish direction in the last two weeks, ie, the ECB and the Fed. The bottom line is that when ultra-easy monetary conditions in Japan and further easing in China are allowed for global monetary conditions are continuing to get easier. Norway and Indonesia also cut interest rates in the last week.

In the US presidential primaries, Donald Trump still looks on track to pick up a majority of delegates (which requires 1237) to the Republican convention in July, but John Kasich's victory in the "winner take all" Ohio primary indicates that it is far from assured so the nomination could still end up being contested and highly fractious for the Republicans. It's worth noting that Trump is only averaging around 35 per cent of the votes at Republican primaries...so 65 per cent are voting for someone else.

Is Brazil a buy? The political and economic crisis in Brazil is going from bad to worse. Meanwhile, its share market is up 35 per cent from its January low with investors anticipating that the impeachment of President Rousseff would turn around Brazil’s outlook. At this stage the impeachment process still has some time to go (maybe up to six months), but it’s doubtful that it will solve Brazil’s problems which run much deeper than the president. Replacing her with the vice-President would probably mean more of the same and would be unlikely to usher in wholesale economic reform. The best outcome would be a new election but that would be a long time off. So I remain a bit cautious on Brazil.

Major global economic events and implications

Apart from soft retail sales figures, US data was mostly good. Housing indicators were generally solid with home builder conditions remaining strong and housing starts up, manufacturing production gained in February with a couple of regional business surveys also looking a lot healthier suggesting that the worst may be over for manufacturing and labour market indicators remained strong. Meanwhile, inflation data showed a further gain in core inflation supporting the Fed's plans to ultimately continue raising interest rates.

Eurozone data for construction and industrial production in January both came in stronger than expected indicating that Eurozone growth is continuing.

The Bank of Japan made no further changes to monetary policy and looks to be in wait and see mode after the further easing it announced back in January. Weak growth and inflation way below target indicate it faces ongoing pressure to do more though.

Australian economic events and implications

In Australia, we saw a messy jobs report for February. Jobs were flat with stronger full time employment offsetting a fall in part time jobs and the unemployment rate fell back to 5.8 per cent but this was due to reduced participation. The basic message is that jobs growth has slowed from the unbelievable pace seen last year and unemployment has spent the last five months stuck around 5.8 to 6 per cent which is not too bad, but it’s not great either. Labour underutilisation, ie unemployment plus underemployment, is down from its recent high but at 14.2 per cent remains very high.

On interest rates, the Minutes from the RBA's last Board meeting offered nothing new. It did highlight the degree to which the RBA is now focussed on risks around China though although its conclusion on China risks is relatively sanguine (as is mine).

A concern for Australia is the continuing rise in the value of the Australian dollar at a time when we are partly relying on a further recovery in trade exposed industries like tourism and higher education to offset the mining downturn. Expect to see stepped up RBA jawboning if it continues to rise.

Next Week

By Craig James, CommSec

After a busy fortnight, the so-called ‘top shelf’ economic indicators will be virtually non-existent in Australia in a holiday shortened week (Good Friday holiday). The highlights are the latest population and wealth figures to be released on Thursday, while a speech by Reserve Bank Governor Stevens will be closely scrutinised by investors on Tuesday.

In Australia, the week kicks off on Monday with the latest CBA Business Sales indicator. This measure uses data on credit and debit card transactions to gauge changes in economy-wide spending. In line with retail sales, trend growth in economy-wide sales has remained healthy to date.

On Tuesday, ANZ and Roy Morgan issue the weekly consumer sentiment reading, while the Australian Bureau of Statistics (ABS) will release residential property prices. In terms of consumer sentiment, households are in a happy place. Lower interest rates, cheap petrol prices and improved job security are all freeing up a few more spending dollars. It is clear that household budgets are looking more attractive than in the past – a result that should support activity across the economy.

Also On Tuesday, Malcolm Edey, Assistant Governor (Financial System) at the Reserve Bank participates in a panel discussion at the ASIC Annual Forum (11:45am AEDT). In addition the Reserve Bank Governor Glenn Stevens is set to deliver a speech at the forum (4:30pm, AEDT). Investors will be interested in any views the policymakers have on the recent political discussions around cuts to negative gearing. Last year the Reserve Bank made the point that if there was a time to be discussing negative gearing it would be now, given the low interest rate environment. Investors will also watch for any views on the Australian dollar.

On Thursday, the ABS will release two publications. The first covers demographic changes over the September quarter while the other publication is entitled “Finance and Wealth” for the December quarter.

Population growth has slowed over the past three years. In December 2012, the population was growing at a 1.78 per cent annual rate – the fastest in three years. But currently annual population growth stands at 1.35 per cent – the slowest rate in nine years. Understandably in-bound migration has eased in line with slower growth of the economy.

Despite the slowdown, population growth in Australia is still high on a global scale, highlighting Federal Treasury’s PPP policy to address the coming challenges of an ageing population. The desire is to increase population growth, workforce participation and productivity growth.

The “Finance and Wealth” publication, also for release on Thursday, will show – amongst other things – the state of household wealth (most likely at record highs) as well as data showing the share of cash held in superannuation accounts and the proportion of our bond and listed equities markets held by foreigners.

And also on Thursday the ABS releases detailed job market data such as employment across industry sectors and unemployment rates for regions.

US housing sector data in focus

The past week was dominated by the US Federal Reserve meeting and resulting changes to forecasts. In the coming week, the US will continue to hold centre stage with the release of a number of indicators on the housing sector and revised estimates on US GDP. Investors will also focus on the “flash” manufacturing PMI’s released across the globe – Japan, the US, France, Germany and the Eurozone - on Thursday.

The week kicks off on Monday with the Chicago Fed National Activity Index and existing home sales for February. Economists expect a 2.4 per cent slide in existing home sales.

On Tuesday, there is raft of economic indicators in the US. The Federal Housing Finance Agency survey on home prices is released alongside the influential Richmond Federal Reserve survey. The usual weekly chain store sales figures are also issued. Home prices are expected to lift by 0.5 per cent in January to be up 5.2 per cent, while the Richmond Fed Index is expected to improve from -4 to -2.

On Wednesday the usual weekly data on home purchase and refinancing is issued with data on new home sales also slated for release. New home sales are expected to rebound by around 1.2 per cent in February after a 9.2 per cent slide in January.

On Thursday, the usual weekly data on claims for unemployment insurance is released together with the preliminary estimate durable goods orders for February – goods designed to last three years or more. The figures also provide a proxy for business investment. Economists tip a 2.5 per cent fall in orders with non-transport goods down 0.1 per cent.

And on Friday in the US, the final estimate of economic growth for the December quarter alongside personal consumption for the December quarter. The quarterly GDP or economic growth data is published three times a quarter and economists expect annualised growth of 1 per cent to be confirmed. The final reading on personal consumption is tipped to show a 2 per cent lift in the December quarter.

Sharemarket, interest rates and commodities

There has been a lot of focus in the recent lift in the level of the Australian dollar. The Aussie dollar lifted to eight-month highs of around US75.95 cents earlier this week. The lift was largely driven by the improvement in commodity prices, in particular the strength in iron ore prices.

And while the stronger Aussie dollar is great news for households, it is not in the best interests of the broader domestic economy – especially in light of the efforts by policymakers to support the rebalancing of the economy away from the mining investment downturn.

If the currency remains persistently high in coming weeks, it may be that the Reserve Bank once again starts the process of “jawboning” – talking down the Aussie dollar. In fact he process may have already started even before the Aussie dollar had its latest lift. Last week the Deputy Governor Phillip Lowe commented that he prefers to see the Australian dollar a little lower, while a month ago, Reserve Bank Board Member John Edwards said he would be more comfortable with the currency at around US65 cents.

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