THE WEEK AHEAD: MAY HOUSING MARKET REPORT
Mark Lister, 14 June 2021
It was another good week for sharemarkets, with the US, Europe and Australia all rising further and finishing at new highs. Europe and the UK posted the strongest gains for the week, while the local NZX 50 added 0.4%.
Interest rates continued to decline, with the US 10-year Treasury yield falling to a three-month low of 1.43% on Friday, despite fears of rising inflation. The five-year swap rate in New Zealand ended the week at 1.17%, down from 1.30%.
A busy week looms, both internationally and closer to home. The Federal Reserve's two-day meeting is undoubtedly the main attraction, and while it no action is expected markets will be watching for changes to forecasts and looking for any indication of when the quantitative easing program could be tapered.
Fed forecasts suggest interest rates are on hold until 2023, but the central bank will still have to begin paring back its US$120bn of monthly bond purchases at some stage. It has said it will signal such a move well before it takes any action, although this would still indicate an important policy shift from easing to tightening.
Other notable events include US retail sales for May, and monthly activity indicators in China. The Bank of Japan also meets this week, while US President Joe Biden and Russian President Vladimir Putin will meet for the first time since Biden took office. The meeting will take place in Geneva on Wednesday.
In Australia, it will be a holiday-shortened week (today is the Queen’s Birthday holiday) and the release to watch will be the May labour force report, which is a crucial one ahead of an important Reserve Bank of Australia meeting in July. The RBA has said that at this meeting it will consider whether to suspend its bond yield target and review its plans for the bond purchase programme. The April labour force report was weaker than expected, although with the JobKeeper initiative ending in March and the Easter and school holiday period also having an impact this was noisy and of little use.
It will be quiet on the corporate front, aside from a few AGMs locally and the Woolworths shareholder meeting to approve the Endeavour Group demerger in Australia. The only international earnings release of note is Adobe on Thursday.
We should also get the May housing market report from the Real Institute of New Zealand (REINZ) this week. In April, nationwide sales volumes were five times higher than a year ago. However, as the country was in level four lockdown in April 2020 the year-on-year figures weren't particularly useful. However, last month was still a very busy one, with the number of sales across the country at the highest level for a month of April in five years.
Early on Wednesday morning we will get the results of the latest global dairy trade (GDT) auction. At the last one, prices were little moved from a fortnight earlier. The headline GDT index was down 0.9%, while whole milk powder prices fell 0.5%. After a strong move higher during the first three months of the year, which saw prices reach a seven-year high, the GDT index has essentially flatlined since the end of March.
The highlight of the domestic week will likely be the March 2021 quarter gross domestic product (GDP) report, which is due for release at 10:45am on Thursday. Despite being fairly dated by now, it will still get some attention and generate media headlines. In the December 2020 quarter, GDP fell 1.0%, and Reserve Bank forecasts (from last month’s Monetary Policy Statement) suggest the March 2021 quarter will reflect another small decline of 0.6% (which would mean a technical recession). Many economists disagree with this expectation of a negative print, and consensus market forecasts point to a 0.5% increase for the quarter.