AUSTRALIAN DIARY: Everything you need to know about the week ahead for markets

How French newspapers covered the Paris atrocity on Saturday. Photo: Phil Bromwell / Twitter

Even before the terrible tragedy in Paris on Saturday the markets were already in a state a flux. It’s hard to know exactly how markets will react to the terrorist incidents given they were already under pressure, challenged by the twin headwinds of the Fed’s move toward it’s first interest rate increase since 2006 and the obvious slowing in non-US, and non-Australian, growth rates around the globe.

Crude oil is back near the August lows after falling $3.56, more than 8%, over the week to $40.73. The S&P 500 backed off from the recent highs above 2100 to close the week down 76 points, 3.63%, to 2,023. The Dow fell 665 points to 17,245 for a fall of 3.71% while the Nasdaq dipped 4.26% to 4,928.

Copper fell to the lowest level since 2009 at just $2.17 a pound. That fall was emblematic of the weakness in the base metal sector and the growing concerns about the state of Chinese and global growth. That hurt the miners; BHP is getting annihilated, and also dragged down the FTSE in London by more than 3.71% over the week. In Frankfurt the DAX fell 2.55% and the CAC in Paris dropped 3.53%.

Locally the ASX200 had a terrible week. After a break to the downside early in the week the recovery proved shortlived as the market gapped lower on Friday to be down more than 2% at one point before the pre-weekend rally took it off the lows for the day. But that didn’t stop the ASX200 losing more than 3% over the course of the week with indications the market will open down as much as 1% to open the week after the weakness on SPI200 futures left the December contract down 37 points and below the important 5,000 level I highlighted in an outlook for traders at AxiTrader Friday.

Here’s the chart:

Of course global markets were always going to be pressured by a Fed tightening when the rest of the world looks weak. But over the past 5 days Fed speaker after Fed speaker has doubled down on their intention to move at the December meeting. That’s a clear and present danger to valuations, both in stock markets, but also bond and credit markets.

But it’s not just the Fed.

It’s growth that is pressuring markets. Last week opened with heightened concerns about China after trade data the previous weekend highlighted the weakness in the economy. CPI (+1.3%) and PPI (-5.9%) during the week reinforced the lack of pricing power and thus the enduring slowdown in the outlook for Chinese growth. Likewise the OECD’s missive during the week with their forecast that 2015 will be the weakest year of global growth since the dark days of the GFC also reinforce the parlous state of the global economy.

The weakness in Chinese new loans also highlighted the lack of traction in Chinese monetary policy and the fact that the PBOC, and the CCP, are suffering from diminishing returns on their policy moves as Linette Lopez pointed out last week.

It all means that even though the data and event calendar is fairly light this week that markets could be in for more turmoil.

Locally the highlights on the data calendar are motor vehicles on Monday. Motor vehicles aren’t exactly recognised as a top tier data release but like Australian employment it’s one sector of the economy that defies notions of a weak economy. So it will be interesting to see if recent strength persists.

The RBA board meeting minutes are out on Tuesday but they shouldn’t surprise after we received both the governor’s statement post meeting and the SoMP on the Friday following. The risk for traders, especially of the Australian dollar, is however they do reflect a pre-employment data thought process.

Remember even uber rate bull Tim Toohey has exited his rate cut call in the wake of the almost 60,000 increase in employment last month and the dip in unemployment to 5.9%. More interesting might be the speech by RBA assistant governor Kent at the UBS Australia conference on Tuesday and the speech by assistant governor Debelle at the Bloomberg summit the following day.

Also out Wednesday is the wage price index and Westpac’s leading index of economic growth. Thursday and Friday are quiet with nothing material out in Australia other than another speech from the RBA’s head of Economic analysis at a resources and energy workshop.

Global data points

Looking offshore Japan has GDP on Monday. That’s important but finance minister Taro Aso said Friday the government is not thinking about a supplemental budget so maybe it won’t be a terrible number. The market is looking for an improvement from the last quarter print of a growth rate of -0.3% to a relatively healthy 0.0%% year on year.

China only has property prices on Wednesday.

In the US the highlight will be the release of CPI on Tuesday. It’s the missing piece in the Fed’s puzzle on the next interest rate rise. Of course last week they have left no one in any doubt that they want to move at the December meeting. But without inflation and amid market ructions it’s a much more difficult ask to hike, whatever they say. Also out in the US are the Fed minutes on Wednesday night and watch the EIA crude stockpiles – oil traders will be.

Thursday is jobless claims and Friday sees nothing released in the US.

Europe and the UK have plenty for traders to worry about with the release of EU CPI Monday, UK CPI Tuesday as well as retail sales and CBI trends in the UK. Germany and the EU release the ZEW survey Tuesday and then German PPI is out Friday.

Here’s the NAB’s excellent calender of all the data and events for the week ahead.

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