Mostly falling equity markets over the past week excited much market commentary about weaker global growth prospects. We expect softer sentiment in risk asset markets and fears about weaker global growth to be comparatively short-lived. The main reason why we expect a more optimistic tone to develop again in risk markets and market commentary before long is that the biggest economy in the world, the US, continues to show signs of recovery.

Over the past week, almost every economic indicator released in the US was stronger than expected. Indicators related to housing activity were especially strong. April existing home sales rose by 0.6%, while new home sales increased by 2.3%. The average prices of existing and new homes jumped in April by 4.8% and 8.3% respectively. In the case of new homes, the average price is a record high $US271,600. Beyond housing, weekly initial jobless claims fell by 23,000 to 340,000 heralding a relatively strong rise in May non-farm payrolls (due 7th June). April durable goods orders rose by 3.3%, three times the 1.1% consensus forecast.

Looking at US indicators due this week, there is good reason to expect more firm readings. Two readings of consumer confidence/ sentiment for May are due, the Conference Board’s confidence measure expected to rise to 71.5 from 68.1 in April and the Reuters/University of Michigan final sentiment reading expected to hold at the mid- month recovery high reading of 83.7, up from 76.4 in April. Strongly rising household wealth driven by double-digit annual growth in house prices and an equity market still close to a record high are underpinning consumer optimism.

More housing indicators are due in the US this week and are also expected to be strong. The March Case-Shiller 20-city house price index is expected to lift by 1.0% for the month and by 10.2% y-o-y, the strongest annual change since the 2006-2007

housing boom years. April pending home sales, providing a look at future housing activity, is expected to show a second consecutive strong monthly improvement, up 1.4% after a 1.5% increase in March. We expect persistently positive US economic readings to grind away at negative marketsentiment.

A more positive US economic outlook should also help to offset concerns about the softer patch in economic growth in the world’s second biggest economy, China. As we mentioned last week, the current slowing in China’s growth rate is in part about ensuring that investment spending in China is less a matter of government project spending and more a matter of private business investment spending. This change in investment spending emphasis may weaken growth in the near-term, but is also a reform that should help promote stronger and more sustainable growth medium-to-longer term.

For Australia, the direct influence of China’s economic fortunes on local growth prospects is much more important than the direct influence of the US these days. A key local economic reading due this week is Q1 2013 private new capital expenditure. Most of the announcements of cuts and deferrals of major resource projects have occurred since the end of March, so it is a little early to see a major pull-back in private capex in Q1 numbers. However, the capex report also contains survey expectations of capex spending in the current financial year, as well as in 2013-14. The previous survey three months ago showed capex spending intentions already falling to $A168.2bn in 2012-13 and $A152.5bn in 2013-14. It is the extent of the downward revisions to these two forecasts that will establish views about how severe the pull- back in mining investment spending will be. What can be said is that all is not gloom. Like the US, some areas of spending in Australia are strongly on the rise, notably spending on housing which often heralds much stronger general household spending.