Traders have a lot of questions to ask and answer in the week ahead following a big week in Australia and on global markets.
For local traders, questions on how low rates will fall now that the RBA has signalled a collapsed expectation on inflation are key to outlook. There are also questions on what impact this will ultimately have on the Australian dollar (down 5% from the high at week’s end) and bank earnings after the deck clearing by the ANZ and results of Westpac, NAB, and Macquarie were also released.
Globally the US dollar was weak but recovered, stocks teetered but then stabilised and the ECB has downgraded its outlook for inflation in another sign the global economy itself is still on the brink. And to top things off, Friday’s release of US non-farm payrolls was a big miss with a print of just 160,000.
But there was no reaction on markets to the release of the weaker than expected non-farms. The US dollar didn’t fall, nor did stocks sell off. That’s unusual, and interesting.
It suggests traders, investors, and economists are confused about when and where the next shoe will drop. That makes the week ahead another interesting one on markets.
Donald Trump has already said some very dangerous things that could spook financial markets. The Republican Party’s presumptive candidate has already shown himself to be a dangerous and loose talker throughout the campaign. This week however, he has moved from name calling of his opponents to thought bubbles about the state of US finances and the appointment of the Federal Reserve chair.
Josh Barro has a disturbing report that Trump is floating an insane idea that would tank the American economy. That idea, and let’s hope he’s not even close to serious, is that he’ll borrow money in the same manner that he did when he was developing or running casinos.
That is, he’ll borrow with a plan to renegotiate with creditors if things go amiss. Yes folks, he’s talking about the debt of the US government — the most hotly prized asset on the globe. Buy gold!
Over at the FT Martin Wolf says Trump’s comment that he wouldn’t likely reappoint Yellen because “she is not a Republican . . . when her time is up I would most likely replace her because of the fact that I think it would be appropriate” is troubling. Wolf’s point is not that it isn’t Trump’s right to appoint who he chooses rather that:
he credibility of the Fed and the predictability of its policies are matters of great import. Knowing that the head of the institution is to be replaced is bound to undermine her authority. So, even if this is what he would end up doing, he should have kept his counsel. But that is unquestionably asking far too much.
RBA signals inflation and rates lower for longer. After the surprise negative CPI result for the first quarter, many in Australia’s economic fraternity said that it was a game changer for the RBA. That wasn’t a universally held view however with the market pricing in around a 40% chance of a cut, and the Australian dollar rallied up to 0.7715 just a few minutes before last Tuesday’s announcement that rates were dropping to 1.75%. The result of the cut was of course that the Aussie collapsed and interest rates rallied.
But while Tuesday’s rate cut was a surprise to many, it was the downgraded forecasts for inflation which the RBA released in Friday’s quarterly Statement on Monetary Policy which were perhaps the week’s biggest shock for traders. The new forecasts almost guarantee another cut to most economists. But the forecasts also imply that the global economic malaise has now firmly landed on Australia’s shores.
Australian Calendar – (courtesy NAB Economics, our emphasis)
A light schedule this week with second-tier data only. ANZ Job Ads on Monday, then weekly Consumer Confidence Tuesday and the monthly measure Wednesday along with Housing Finance. The RBA’s Edey is speaking at a Cards and Payments conference Thursday.
Consumer confidence — can the budget deliver an election winning boost?
In no small part we’ll probably know the result of the federal election, to be held July 2nd, by Wednesday after both ANZ and Westpac release their consumer confidence/sentiment surveys.
That’s because how consumers feel post budget is likely to guide their feelings toward the Turnbull led Coalition or the Shorten led Labor Party. Here’s what Westpac said about the survey and its potential signal in their Australian and New Zealand Weekly:
The May survey is in the field over the week ended May 8 and will capture initial reactions to the Federal Budget and the RBA’s surprise 25bp rate cut – both delivered on May 3 (responses to an additional question on the Budget impact should go some way towards disentangling the impact of these two events). Other factors that may also come into play are: housing markets, which have shown some improvement including a solid price rise in Apr; and the ASX, which has rallied nearly 7% since the Apr survey. Although not typically a sentiment driver, the surprisingly weak Q1 CPI may also factor
That potentially sounds like an election moving combination.
Where sentiment goes will indicate the saleability of the budget and most likely, the the outcome of the election.
International Calendar (also courtesy NAB Market Economics)
Global: EIA 2016 Energy Outlook Wednesday and IEA Oil Market Report Thursday
US: Plenty of opportunity lies ahead for Fed wire reports with six Fed speakers on the schedule this week, kicking off with the Fed’s Evans in London on Monday. Also on the roster for the week are Kashkari, Mester, Rosengren, George, and San Fran Fed president Williams.
On the data front ,Labour Market Conditions index on Monday, then the NFIB Small Business Optimism Index, Wholesale Inventories and JOLTs Job Openings Tuesday, monthly the Budget report on Wednesday, Jobless Claims on Thursday, all ahead of a larger Friday with Retail Sales, PPI, Business Inventories, and the University of Michigan Consumer Sentiment index preliminary May reading on Friday.
China: Foreign reserves and trade this weekend ahead of CPI, PPI on Tuesday. New Yuan loans and Aggregate financing reports are due any day.
Euro: German Factory Orders and Eurozone Sentix Investor Confidence on Monday, German Industrial Production and Trade on Tuesday, then Eurozone Industrial Production on Thursday ahead of German CPI and the key German/Eurozone Q1 GDP reports on Friday.
UK: Thursday’s BoE press conference and Minutes Is the main highlight for the UK.
Canada: Employment tonight, then housing starts on Monday, then quiet for the rest of the week with only house prices on Thursday that might get some market interest.
NZ: Wednesday RBNZ Financial Stability Report and press conference to draw interest. Friday’s Retail Trade the main data report.
And now here’s the NAB’s excellent calender of all the news and events this week.