Happy new year, everyone. I hope you had a great break, and that you didn’t have too many bets on the price of oil rising.
Let’s look at the week ahead.
Offshore markets have been driving local events so far in 2015, which has kicked off with a bang as sentiment about stocks, the US dollar and the state of the global economy has ebbed and flowed in large waves already.
Looking back Friday’s US non-farm payrolls was a good number for the American economy, adding 252,000 new jobs in December with the unemployment rate falling to 5.6%. But it’s the inflation data in the US, UK and Europe, to be released this week, which might just overshadow Friday’s numbers and reinforce moves toward QE in Europe and perhaps hint at a Fed that will need to delay hiking rates this year.
Tuesday sees the release of UK CPI and PPI with the markets looking for outcomes of 0.7% and -0.6% year on year respectively. Greek and Portuguese CPI data is also out Tuesday.
On Wednesday we get French and Italian CPI, data on US import and export prices and then on Thursday we get the release of German wholesale prices (-1.1% yoy last), Spanish CPI (-0.4% yoy last) and US December Producer Prices with the mrket expecting the year on year rate in December to have fallen to 1.2% from last month’s 1.4%.
It all speaks of accelerating global deflation and markets will be on tenterhooks Friday with the release of EU CPI which is expected to fall to -0.2% year on year from 0.3% last! Traders’ eyes will then switch to US December CPI which the market expects to have fallen 0.3% on the month, taking the year-on-year rate down to 1% in December.
While the data might be offshore based Australian stocks and the Aussie dollar will continue to be buffeted by the swings in sentiment that the fall in oil and thus prices in individual and the global economy will have on the market.
The federal politicians are still on holidays but the Queensland election will be keeping them busy and might be a good testing ground for the path the Abbott government might take in framing its budget over the next few months.
Crucially for them on Thursday we get the Australian jobs numbers. The market expects 5,000 jobs added, and some banks are calling for a negative number. If it is a number with a minus in front of it, that will mark an ugly start to the political year for the federal government and you can expect to see a lot of talk about it. If the number’s a positive, then everyone gets to go back to their holiday.
But traders will worry about that later because by week’s end they are likely to be convinced the ECB has no choice but to get busy with QE and hopes may turn to a Fed on hold for longer than they already have signalled.
That means the Aussie dollar might end the week still above 82 cents if risk appetite and interest rate differentials work in its favour.
Other issues to consider globally are the possibility of a Grexit (Greek exit from the Euro – get used to the term), the ability of western governments to deal with Islamic extremism and and the big issue that everyone controlling big money is thinking about: when will the US Federal Reserve raise interest rates?
It’s a big week for local and offshore markets and volatility seems assured.
Here’s Westpac’s excellent economic preview of the key events for the week including Chinese loans and trade data which will released at some point in the week.