Event
- Employment and housing finance data will be the main focus in Australia, while in NZ, retail sales data will be the highlight
- Financial markets have been hit by a renewed bout of uncertainty as investors fret about the potential impact of regulatory action and the ability of some Governments - such as Greece and Spain - to finance their large budget deficits. While those fears aren't directly applicable to Australia or New Zealand, the decision of the RBA to keep rates steady in February has also introduced a note of uncertainty as to whether interest rates will rise as far - or as fast - as previously thought. Another fall in housing finance data - and the chance of a softer employment report - would increase the chances that the RBA pauses again next month
- While global financial markets have developed another case of the jitters, the outlook for Australian growth in 2010 has become even clearer, and the picture is reassuring. Although markets reacted to the dip in retail spending in the month of December 2009, they conveniently forgot about the very strong November reading, and the solid 1.1% growth in quarterly sales volumes.
- More importantly, however, is the ongoing strength in building approvals data. Non-residential approvals remain very strong, supported by the government's school building program. But dwelling approvals have also increased by 53%YoY, which will underpin GDP growth in the next 12 months
- Not only will stronger housing construction support growth, but because it is labour intensive, it will also support employment. Thus, even if employment blipped higher in January, there is a good chance that unemployment will fall to 5% by the end of 2010. And, of course, as those new dwellings are completed, spending on household items will rise as people fill their new homes with furniture, electrical appliances and floor coverings.
- Thus, there is a clear risk that the current market weakness distracts the attention of both policymakers and investors away from the increasinly sound domestic outlook. And this could provoke a sharper policy response down the track.
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