Is there a flicker of action emerging in wage growth?

This week in finance: Wage Price Index (Wednesday) likely to show wages growth stuck near historic lows

Wage Price Index (Wednesday) likely to show wages growth stuck near historic lows Labour force (Thursday) forecast for 20K new jobs in April and unemployment steady at 5.5pc

Labour force (Thursday) forecast for 20K new jobs in April and unemployment steady at 5.5pc Chinese infrastructure investment, industrial production and retail sales (Tuesday) should continue to rebound from soft 2018 start

The recent release of enterprise bargaining agreements (EBAs) from the final quarter of 2017 certainly showed promise.

EBAs rose by 2.5 per cent over the quarter.

That might have been a marginal improvement on the record low growth over the previous three months, but at least it was heading in the right direction after a year in reverse.

The pick-up was broad based, across both public and private sectors and flowing through to workers from construction and through to the down-at-heel retail trade.

Despite that, there is little expectation it will suddenly spark a surge in aggregate wages growth when the Australian Bureau of Statistics publishes its latest data on Wednesday.

The consensus view is the Wage Price Index (WPI) will rise by around 0.6 per cent over the quarter, giving an annualised growth rate of 2.1 per cent.

In other words, pretty much where it has been for a couple of years, bumping along at, or near historic lows.

The WPI is one of a number of measures of wage growth, and the perhaps the "purest' — at least in the eyes of statisticians and treasury officials — as it tracks changes in salaries where the quality and quantity of jobs are held constant.

Other measures such as in the National Accounts, or Average Weekly Earnings are broader, highlighting changes such as the shift to lower paid work, have been similarly weak.

In the last National Accounts (GDP) figures, average wage growth, including bonuses and superannuation, was zero.

That was no great surprise as it has been tracking below 1 per cent for several years.

The big conundrum is why booming jobs growth is not delivering a healthy wages outcome, the way economic theorists and Federal Government ministers insist it will.

The problem lies in the composition of the jobs data and the fact there still a lot of spare capacity in the jobs market.

The best measure of spare capacity, the underutilisation rate — made up of the unemployed and those looking for more work — has hardly budged in four years despite booming jobs growth.

Robust population growth has not only fuelled that boom, it has kept the pool of available workers topped up and put downward pressure on wages.

When will the jobs boom deliver on higher wages?

The mantra from the Government, the Reserve Bank and most market economists is the momentum of jobs growth will deliver higher wages — eventually.

Nailing down what is meant by "eventually" is a tough task.

There have been disturbing signs things are slowing with two soft months of employment data, and the record 16-month run of jobs growth coming to an abrupt end in February.

That looks like it has kicked "eventually" a bit further down the track.

Two forward-looking insights in the employment market, ANZ's jobs ads series and NAB's business survey, are telling two different stories.

ANZ says momentum is slowing, NAB is still a jobs bull.

To smooth over their differences, ANZ has bundled both sets of data and thrown in the employment prospects figure from Westpac's consumer sentiment reading for good measure to come up with a new figure, the Labour Market Indicator (LMI).

ANZ's David Plank says the LMI points to employment growth continuing but at a slightly slower pace than the 3 per cent seen over the past year.

"This moderate slowdown in employment growth doesn't come at the expense of a higher unemployment rate, however," Mr Plank said.

While ANZ's view is this should translate into a gradual acceleration in wages and an eventual tightening by the RBA, just when remains elusive.

Stronger wage and employment data in the coming week will be an important step in the right direction.

Disappointing numbers? Then "eventually" disappears a bit further over the horizon and wage growth is likely to remain weak well into next year, and probably beyond.

Consumer confidence and the budget

Treasurer Scott Morrison will get his first reading of what consumers think about his budget this week. ( ABC News: Matt Roberts )

Westpac's consumer survey will give the Federal Government an early idea of how its budget went over with consumers.

Westpac conducted its respected and long-running survey last week so it should capture consumers' initial thoughts, which is an important consideration given the budget's centrepiece was a tax package to stimulate consumption spending.

In recent times optimism and pessimism have been reasonably balanced.

Capital Economics' Paul Dales suspects the budget will provide a small boost in confidence.

By way of reference, confidence fell a tad immediately after Treasurer Scott Morrison's 2017 effort, the previous two budgets before inspired solid rises.

"It seems far more likely than not that the income tax cuts announced for low and middle income earners should provide some boost," Mr Dales said.

"But we suspect any boost will be temporary, with confidence likely to weaken in the coming months as family finances continue to come under pressure from low wage growth and a slowing housing market."

Global markets rally in sync

It was a fairly odd week on global markets.

Despite little evidence of a rebound from the recent souring of activity data, all the key markets rallied in sync for the first time in several weeks.

Global equities, credit and metals all bounced. The VIX index, the so-called "Fear Index", subsided back to more complacent levels last seen before February's correction.

Weaker than expected inflation helped kick Wall Street higher on Friday, while the major US indices enjoyed their strongest gains in two months, all up around 2.5 per cent.

The ASX put on just less than 1 per cent and appears to be heading for a flat opening to the week.

Markets on Friday's close: ASX SPI 200 futures +0.1pc at 6,100 ASX 200 (Friday's close) flat at 6,116

ASX SPI 200 futures +0.1pc at 6,100 ASX 200 (Friday's close) flat at 6,116 AUD: 75.4 US cents, 63.1 euro cents, 55.7 British pence, 82.5 Japanese yen, $NZ1.08

AUD: 75.4 US cents, 63.1 euro cents, 55.7 British pence, 82.5 Japanese yen, $NZ1.08 US: Dow Jones +0.4pc at 24,831 S&P500 +0.2pc at 2,728 NASDAQ flat at 7,402

US: Dow Jones +0.4pc at 24,831 S&P500 +0.2pc at 2,728 NASDAQ flat at 7,402 Europe: FTSE +0.3pc at 7,724 DAX -0.2pc at 13,001 EuroStoxx50 -0.1pc at 3,566

Europe: FTSE +0.3pc at 7,724 DAX -0.2pc at 13,001 EuroStoxx50 -0.1pc at 3,566 Commodities: Brent oil -0.5pc at $US77.17/barrel, Gold -0.3pc at $US1318/ounce, Iron ore +1.5pc at $US67.50

Is oil about to run out of gas?

While oil had a bit of breather on Friday, the Trump Administration's decision to reimpose trade sanctions on Iran continued to drive prices higher over the week.

The global benchmark Brent crude rose almost 3 per cent.

In the US, West Texas Intermediate crude, which is becoming increasingly disconnected from the global trade, rose a bit more than 1 per cent.

Interestingly, the US has just gone past Saudi Arabia as the world's second largest oil producer, and now has Russia in it sights.

The US should soon pass Russia to become the world's biggest oil producer. ( Supplied: Thomson Reuters )

The threat of removing around 300,000 barrels a day of Iranian oil from the market, along with the on-going strife in Venezuela and Saudi Arabia's reluctance to plug any shortfall has led to some serious bets being placed on the price going even higher.

But risks are emerging.

"Tightening crude oil supply and a backwardated curve [where spot oil is trading below future price expectations] has attracted investors, leading to speculative positions reaching a record high, making oil vulnerable to a sharp pullback in prices if supply risks subside," ANZ's commodities strategist Daniel Hynes said.

Right on cue, Reuters reported data released late on Friday showed hedge funds slashed their bullish wagers on US crude to the lowest level in nearly five months.

It might be merely a wrinkle, but if the trend continues and speculators bail out at last week's pace, there may be some relief in sight at the petrol pumps.

One the other side of the equation, Mr Hynes also points out the modest net-long positions in gold could lead to a pretty solid rally if geopolitical risks keep rising.

Speculative positions in oil futures trading are near record highs. ( Supplied: ANZ )

China rebounds after slow start to 2018

For the big iron ore producers and investors the important news of the week will be the monthly Chinese data dump, in particular industrial production and infrastructure spending.

There was a strong pick in March, with total fixed asset investment in the real estate sector up by more than 10 per cent over the year, the strongest growth in more than three years.

April's data is expected to be pretty much in line with the recent rebound.

The stars seem aligned for steel prices, and by extension iron ore, at the moment.

Chinese steel making activity has jumped at a time inventories are falling, while iron ore supplies have been disrupted.



Mr Hynes said after a soft start to the year, the outlook for the iron ore market has picked up in recent weeks.

"Our expected surplus [for iron ore supplies] in 2018 has all but evaporated," he said.

"We maintain our view that iron ore prices have limited downside and expect prices to push back towards $US69 a tonne over the next few months."

Japan's economy back in reverse?

The other big question of the week is whether Japan's spluttering economy has gone into reverse again.

The consensus view is it has, and GDP shrank over the first quarter due to weak private consumption and softer export demand.

The expected 0.2 per cent contraction ends eight consecutive quarters of growth.

Not quite in the same league as Australia's 108 recession-free quarters, but it is still Japan's best run since its economic bubble burst in the 1980s.

However, it does not necessarily signal Japan's economy is going under again, more like bogged in a soggy patch caused by a particularly bitter winter.

Australia

Date Event Forecast Monday 14/5/2018 Credit card purchases & balances Mar: We're spending around $25bn a month on cards & owe $52bn on them Tuesday 15/5/2018 RBA minutes & speeches Release of May board meeting minutes & deputy governor Guy Debelle delivers two speeches Wednesday 16/5/2018 Wage price index Q1: Still plodding along, growing at a torpid 2.1pc YOY Consumer confidence May: Westpac series, will capture consumers' first take on the budget Thursday 17/5/2018 Employment/unemployment Apr: Around 20K new jobs, unemployment to hold at 5.5pc

Overseas