It’s a big week for local markets and traders with the release of the most important RBA minutes in a long time Tuesday and the April jobs data for Australia Thursday.
That, and the weaker than expected data from China over the weekend may see the Aussie dollar and stocks under pressure as the week begins.
That pressure was already building Friday with stocks in the US closing at their lowest level since April 11 after retail sales and a strong bounce in consumer confidence suggested the Fed may not be as far away from a tightening as many would expect.
Further falls in US stocks will put more downward pressure on the ASX200 which posted a year’s high of 5425 during the week but closed almost 100 points lower Friday at 5328.
Last week’s strong rally in local bond rates under the weight of heightened expectations of a deep RBA rate cutting cycle will face its first big test on Tuesday.
Weaker Chinese data is a big headwind for markets. One of the things that rescued markets from their funk earlier this year was the recovery in the price of oil. That helped other commodities rally and with it, worries in credit and stock markets settled down and prices rose. But in no small part was the overall recovery in markets aided and abetted by the improvement in Chinese data which started to beat market expectations. That was good news. The trouble recently however is that Chinese data is again undershooting expectations. That’s a challenge for traders and markets.
Over the weekend David Scutt reported that China’s data dump had missed across the board for April. Industrial output grew by 6.0% from 12 months earlier according to China’s National Bureau of Statistics, down on the 6.8% pace seen in March and expectations for an increase of 6.5%. Retail sales also missed with a print of 10.1% year-on-year, below March’s 10.5% which was also the market’s expectation for April. Urban investment rose 10.5% below expectations of 10.9%.
6% and 10% growth rates are still very solid by global standards. The question for traders is whether the fact China is slowing is cause for concern — and selling.
The Australian dollar is quietly crashing. The single biggest win for the RBA, and the Australian economy, over the course of May has been the 4.4% fall in the Australian dollar since the end of April. Closing at 0.7266 on Saturday morning, the Aussie is actually 7.1% lower than the month’s high and forecasters are increasingly calling for the Aussie to head into the mid 60 cents region — Deutsche Bank says 60 cents.
This week is a big one for the Aussie and traders will be watching the mid 72 cent region closely because it’s where the 200 day moving average sits. That’s the level many traders use to delineate between bull and bear trends. A break is likely to see selling accelerate.
Australian Calendar — (courtesy NAB Economics, our emphasis)
It’s an important week in Australia with the RBA May Board Minutes Tuesday and the Employment report Thursday. Other data out in the week include Tuesday’s second-tier reports of weekly consumer confidence along with motor vehicle sales, and Wednesday’s Wage Price Index. RBA assistant governor Debelle also speaks Wednesday on Global FX Markets.
The NAB says it is expecting the labour market to continue its recent improvement and has forecast employment growth of 16,000 for April with the unemployment rate at 5.7%. That’s a bit more bullish than the market’s expectation of 12,000 and unemployment of 5.8%.
RBA Minutes — more important than ever. The RBA’s quarterly Statement on Monetary Policy and the downgraded inflation forecasts were responsible for a wholesale repricing of interest rate expectations and the Australian dollar. Economists and forecasters are now looking for rates as low as 1% and the Aussie to fall as far as 60 cents.
But the SoMP is in no small part a backward-looking document which the RBA uses to justify the moves it has made. So, there is no guarantee that just because forecasters have read the RBA’s new inflation outlook as meaning rates in Australia will collapse, that that is how the RBA sees the path of rates. This makes the minutes to the RBA board meeting this month, when they decided to cut rates to 1.75%, and the discussion they represent the most important minutes in a very long time.
The NAB says:
The key questions for markets that they will be seeking answers to in these Minutes will be: (1) how comfortable is the Board on the new inflation forecast track; (2) if the board is comfortable on the new inflation track, are further rate cuts necessary to secure the track; (3) how long is the Board prepared to permit inflation to remain outside of the 2-3% target range if economic activity and the labour market continues to improve (more on that below).
International Calendar (also courtesy NAB Market Economics)
Global: G7 Finance Ministers and Central Bank Governors meet Friday.
US: A busy week with CPI and Industrial Production Tuesday, FOMC April Meeting Minutes Wednesday and a raft of Fed speakers with Dudley Thursday the likely highlight. Plenty of second-tier data too with Empire Monday and Chicago and Philadelphia Fed Thursday, weekly initial jobless claims Thursday, as well as housing data including housing starts Tuesday with existing home sales Friday.
China: Key monthly data out this Saturday (May 14) with Retail Sales, Industrial Production and Fixed Asset Investment. Chinese loan data also due on the weekend although exact date not given.
Euro: A quiet week for the Eurozone with Trade Balance Tuesday and CPI Wednesday.
UK: A busy week with CPI Tuesday, Employment data Wednesday and Retail Sales Thursday.
Canada: A quiet week until Friday when Retail Sales and CPI are released.
NZ: Mostly second-tier data with PSI Monday, RBNZ inflation expectations survey Tuesday, and ANZ survey Thursday.