Global markets have just been through an extraordinary week. But it doesn’t get any easier from tomorrow with a monster diary of data and events in Australia and across the globe.
That – together with signs from Fed vice-chair Stanley Fischer at Jackson Hole over the weekend that the September FOMC meeting is live – is going to keep traders on their toes.
In a purely trading sense the rebound that we saw in the second half of last week after the acute weakness in stocks, commodities, commodity currencies and the US dollar over Monday and Tuesday was some of the easiest profits long-term traders will have ever made. That’s because markets were so oversold and ripe for a snap-back. As Robert Shiller wrote in the New York Times last Thursday the five-day decline that saw the S&P 500 lose 10% in 5 days has only happened 9 times since 1950.
That’s rare, that’s oversold, and the price action which saw the Dow, S&P and indices around the globe rebound was mirrored in everything from crude oil, to copper, to the Euro (which reversed of its rally to 1.17), bonds, the VIX and so on.
Markets were oversold and bounced.
That snapback was the easy part.
Longer term, questions about stock valuations in the US and in other developed countries remain. Likewise questions of what the Fed, and other central banks like the Bank of England, our own Reserve Bank (which the market is increasingly expecting to cut rates again) need to be resolved.
Which means the data flow this week, which includes the RBA decision, Australian second quarter GDP, an ECB decision and US non-farm payrolls are vitally important.
Here’s the NAB’s summary of the massive week ahead in Australia:
A super week busy lies ahead for the Australian data and policy event calendar, with highlights being Tuesday’s RBA Board meeting (no change highly likely) and Wednesday’s June quarter GDP release.
There are the pre-GDP June quarter partials on Monday and Tuesday (profits, non-farm inventories, aggregate wages Monday, net exports, terms of trade, and government spending Tuesday). And there is a welter of monthly partials, starting Monday with the TD-MI CPI gauge (August), New Home Sales (July) and RBA credit (July). Then Tuesday sees the weekly ANZ-Roy Morgan Consumer confidence, the AiG PMI Manufacturing index (August), Building Approvals (July) then in the afternoon RBA commodity prices (August) and the CoreLogic RP Data House prices (also August). Wednesday sees the NAB Online Retail Sales index (July, and ahead of July ABS retail sales Thursday). On Thursday is international trade and retail trade (both July), while the three AiG PSI Services indexes (August) start Tuesday.
It’s simply huge, the biggest week of the quarter in many respects for local data watchers.
While the RBA, and any hints on interest rates cuts and the Aussie dollar is important it’s GDP and retail sales which are the key events.
In terms of GDP, the NAB is betting on a 0.6% print, Westpac sees 0.4% and the market has a range of between -0.1% to +0.7%. But the UBS economics team in Sydney reckons there is a big chance that Australia might already be in recession and that there is an increased probability of a negative print after Capex last week.
UBS economists George Tharenou and Scott Haslem said in a note on GDP Friday that:
Our base-case Q2 GDP forecast of 0.2% q/q (1.9% y/y) is below consensus, but capex survey data suggests some chance of a negative print, which would raise the risk of a technical recession ahead (i.e. 2 consecutive quarters of negative real GDP).
Indeed, Q2 nominal GDP is likely to fall q/q (-0.3%, +0.7% y/y), the weakest since the GFC – hit by a collapsing terms of trade , record low wages & ~flat profits. Hence, the broadest measure of ‘income’ – Real Net National Disposable Income (i.e. real GDP adjusted for terms of trade & foreign ownership) – is in recession (after Q1’s -0.2% y/y).
If they are right and the nominal GDP goes backwards it likely feels recessionary in some parts of the economy even beyond the mining sector.
But, while important, GDP is backward looking – we do after all enter September this week, so retail sales might give a better lead on how well the economic transition is actually taking shape, or not.
Westpac says that “July will see any Budget-related spending lift reverse. Consumer sentiment also fell quite sharply following renewed instability in Europe and a slump in China’s sharemarket. However, the evidence from private sector business surveys and anecdotal reports suggests Q2 sales momentum has been sustained.” There forecast is a rise of 0.4% to follow last month’s 0.7% increase. The market is looking for between +0.1% and +0.5%.
Offshore the reverberations of Fed vice-chair comments over the weekend are going to be the big topic of conversation in dealing rooms and around the investment committee table early this week. To summarise Fisher hinted that these 7 charts give him “good reason to believe” inflation will move higher.
BI US’s Sam Ro reported over the weekend that Fischer said “given the apparent stability of inflation expectations, there is good reason to believe that inflation will move higher as the forces holding down inflation dissipate further.”
Which means that the ISM manufacturing data on Tuesday night, Australian time, is going to be important but that the non-farm payrolls in the US on Friday night, and the lead up releases of ADP employment on Wednesday night and Challenger job cuts and jobless claims on Thursday night will be vitally important in highlighting that the US economic strength (last week we saw Q2 GDP upgraded to 3.7%) is incompatible with zero percent interest rates.
The market is looking for a print of 220,000 jobs in August and an unemployment rate of 5.3%. Figures in this range will reinforce that the Fed is indeed in play for its first hike this month.
Elsewhere around the globe German retail sales on Monday night are expected to moderate, EU CPI is out as well with market looking for a very benign 0.1% YoY headline rate.
Chinese data will be important this week as well with the release of the official NBS manufacturing PMI and the Markit Caixin manufacturing and services PMIs also out Tuesday. It being the first week of the month, there’s a raft of PMIs out around the globe on Tuesday as well.
EU PPI is out Wednesday while Thursday sees the release of Korean GDP for Q2 and a raft of Service indices across the globe. There is also an ECb interest rate decison, statement and press conference. EU GDP is out Friday along with UK inflation expectations. But it’s non-farm payrolls that are the key.
It’s a huge week.
Here is Westpac’s diary of all the key events for the week.