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

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The rally in stocks on the big US and international indexes stalled last week ahead of important technical resistance. Whether it’s the S&P 500 in New York, the DAX in Frankfurt or the FTSE in London, prices appear to reflect full value for the current outlook.

Given it is the second half of the month containing second tier data, trade in the week ahead will be very important for traders. That’s because lacking the usual catalysts to take stocks higher, traders will have to decide on their own — or prices, and the risk rally, will drift lower.

An important driver of their outlook will be last night’s decision by the world’s big oil producers to not cap production until Iran agrees to a freeze – which it didn’t.

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  • Saudi Arabia, OPEC deal, 9/11 and the threat to sell $750 billion in assets. For more than 40 years the price of oil has been as much about politics and power as it has been about anything else like supply and demand. So it’s no surprise that without Iran at the table the Saudi’s appear to have scuppered any chance of a production freeze at the weekend’s meeting in Doha.

    But there are Saudi’s aren’t scared of an all-out price war as they seek to drive US shale oil producers out of production. At the same time they don’t want to cede a position to Iran, their Middle Eastern adversary either. Indeed even before the meeting the Saudis were threatening that they can flood the world with oil if they like. The battle line is clear here and if we add in the threat that they will sell $750 billion of US assets if Congress passes bill that would let 9/11 victims sue Saudi Arabia and you can see another reason the Saudis don’t want to play ball on a production freeze that may help the US and its producers.

    Here’s a great chart from the NAB economics team showing the widening gap between supply and demand for oil and as a result, the downward pressure on prices without a production cut.

  • The Australian dollar is trying to break higher — RBA minutes a key test.
    Buoyed by a strong NAB business survey and another solid month of jobs growth, the Aussie dollar finished the week at 0.7721. That’s the highest close since June 25 2015 as foreign investors and a lack of sellers combine to drive the Aussie higher. Chances are rising that it heads toward resistance at 78 cents and perhaps even the 80/81 cent region.

    So even though the rising Aussie dollar is “complicating” Australia economic transition, there seems little the RBA can do, or is willing to do, about the Aussie’s rise given they believe the Fed will be tightening mid-year as well as a fall in commodity prices which would drag the Aussie lower. But having upped the ante on the Aussie’s economic impact and pushed the door ajar for another rate cut in the governor’s statement, the minutes to this month’s RBA board meeting will be watched closely for exactly how deep the conversation are around the Aussie dollar and a possible response. If the minutes don’t reveal any imminent action, the bulls might find their strength.

Economic Calendar

Australian Calendar – (courtesy NAB Economics, our emphasis)

The NAB quarterly business survey is out Thursday in a light data week, along with the NAB residential property survey Wednesday. Before then, the focus revolves around the RBA Board Minutes Tuesday, followed by a speech from RBA Governor Stevens in New York, the title not yet available.

The NAB economics teams appears to think that any worries the RBA might have had at the start of the month about the pace of Australian growth would have been put to bed by the “very positive run of data” last week.

  • NAB Quarterly Business Survey and business CapEx. The quarterly survey is the monthly survey’s bigger sibling covering 1500 businesses. It gets to ask extra, and forward looking questions and the NAB says they are particularly keen to see what businesses say about their investment plans.

    “In the previous survey, firms said they were likely to pick up their pace of capital expenditures and it will be interesting to see wether this holds this survey — recall the pick-up in non-mining investment remains the missing piece in the RBA’s transition story to non-mining led growth.

International Calendar (also courtesy NAB Market Economics)

Global: Major oil producers to discuss a production freeze Sunday.

US: NAHB housing market index on Monday, housing starts/permits Tuesday, existing home sales Wednesday, jobless claims and Philly Fed survey on Thursday. Fed speakers including Fed Presidents Dudley, Kashkari, and Rosengren all speak Monday ahead of the pre-28 April FOMC media lock down. Q1 earnings seasons continues with Morgan Stanley Monday, Goldman Tuesday, and GE Friday.

China:Property prices Monday in a light week. M&I business indicator Friday.

  • Hedge funds are still convinced that China is going to be forced into a massive currency devaluation. Chinese growth was 6.7% in the first quarter — right on market expectations. That continued the run of better data recently which included the stabilisation of capital flows and the Chinese currency, the Yuan.

    But that doesn’t mean China is improving say a bunch of hedge fund managers who Linette Lopez reports got together to give the country’s prospects of winning its currency battle a caning. Anne Stevenson-Yang, co-founder of J Capital Research, says China has 9 months before its currency “reserves are down to a perilous point”.

    “In 12 months there will be a currency crisis of around 15%,” she said. “There will be a banking crisis two years later.”

Euro: ECB meeting Thursday. Data releases include EC current account, ECB lending survey, construction output and ZEW survey on Tuesday.

UK: Labour market report on Wednesday, EC consumer confidence on Thursday and preliminary EC Manufacturing/ Service PMIs on Friday. UK’s Osborne speaks on Brexit risks Tuesday.

Canada: International securities transactions Monday, wholesale trade Wednesday, ahead of market-sensitive retail sales and CPI on Friday. BoC Governor Poloz speaks Tuesday.

NZ: CPI on Monday the highlight. Also PSI services Tuesday, world dairy auction Tuesday night with ANZ job ads, net migration and ANZ consumer confidence and credit card spending all on Thursday.

Here’s the NAB’s excellent calendar of all the key data and event:

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