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

Photo: Matthew Horwood/Getty Images.

Get set for the “Autumn Avalanche”. That’s the message from Savanth Sebastian, Economist at Commsec who wrote in his weekly Investor Signposts publication that in the “next fortnight over a dozen pieces of economic data will be released together with a meeting of the Reserve Bank Board”.

And that’s just Australia. Globally, this week and next sees an avalanche of data as well. Perhaps no more important than US non-farm payrolls this Friday and China PMI’s on Tuesday and Thursday.

It’s a huge week to confirm or deny the recovery in global stocks, oil, and risk appetite after a weak close Friday for the Dow and S&P500 which took some gloss off a solid week’s trade in both the US and Europe. The Australian market lagged badly in contrast to offshore counterparts losing 1.47% while the S&P climbed 1.58% and the DAX in Germany gained 1.33%.

The US dollar found form toward week’s end driving the Euro, Sterling, Yen, and Aussie dollars all lower Friday after US data suggested the Fed will still be raising rates in 2016.

Markets are happier than they have been so far this week as we head toward the massive data dump. It’s going to be another big one.

The Top Stories

  • The G20 says “the magnitude of recent market volatility has not reflected the underlying fundamentals of the global economy.” Nothing to see here, move along said the finance ministers and central bank governors in their communique after the little get together in Shanghai at the end of last week. Given where the global economy and markets are at the start of 2016 it’s probably the most troublesome meeting since the group was formed in 2009 in the wake of the GFC.

    But never fear, those who have not been able to fix the mess for the past 7 years reckon traders and commentators just need to take a Bex and lie down (our emphasis):

    The global recovery continues, but it remains uneven and falls short of our ambition for strong, sustainable and balanced growth. Downside risks and vulnerabilities have risen, against the backdrop of volatile capital flows, a large drop of commodity prices, escalated geopolitical tensions, the shock of a potential UK exit from the European Union and a large and increasing number of refugees in some regions. Additionally, there are growing concerns about the risk of further downward revision in global economic prospects. While recognising these challenges, we nevertheless judge that the magnitude of recent market volatility has not reflected the underlying fundamentals of the global economy. We expect activity to continue to expand at a moderate pace in most advanced economies, and growth in key emerging market economies remains strong. However, we agree that we need to do more to achieve our common objectives for global growth. We will continue to monitor global economic and financial developments closely.

    Forgive my cynicism but the above statement is clearly made without irony, yet these guys and gals have consistently failed to meet stated targets and goals year after year. Again there was no plan and markets are losing faith in this cabal of global policy makers. That’s the one source of volatility they didn’t mention.

  • Warren Buffett shreds the doomsayers on the US and global economy. If you read nothing else this week, read Myles Udland’s take of Buffett’s comments about 2% growth in the US, from his annual letter released over the weekend. Then think about them. I am on board 100% and said something similar to an audience I was presenting to last week. It’s important because if Buffet is right — and he is – then central banks can stop panicking, chill out and get positive again.

    What Buffett said was low growth isn’t so bad. You need a bit of maths, the power of compound interest — the most powerful force in the galaxy — and a long-term view and voila, the whole outlook changes. Guess what else — if people, central banks, and governments turn more positive you might actually get even better outcomes.

The Economic Calendar

Australian Calendar – (courtesy NAB Economics, our emphasis)

It’s a big week with initial focus on pre-Q4 GDP partials (inventories, company profits, wages, government spending) ahead of Wednesday’s GDP. Key monthly reports include RBA credit, building approvals, trade balance and retail trade, along with a suite of less market sensitive monthlies (monthly CPI gauge, house prices, RBA commodity prices, NAB Online Retail and AIG PMIs). No analyst expects any RBA cash rate change; neither is any substantial change in emphasis in the post meeting statement likely with time still on their hands to wait to see how the data pans out.

  • Traders will be hanging on the RBA governors statement Tuesday. “All 27 economists surveyed in today’s Bloomberg poll expect the RBA to leave rates on hold this week at 2.00%. Similarly, the market is pricing in a 97% chance the RBA will leave rates on hold next week. However, the market is pricing in more than a mild monetary policy easing bias with 43 basis points of cuts to the RBA cash rate for the year ahead. While the subsequent data flow — especially labour market indicators — will likely have the biggest bearing on policy, the market will be paying very close attention to the RBA’s characterisation of recent economic data at home and abroad, risks to the outlook and whether it is overtly anxious at all about the level of the Australian dollar. As for the key policy outlook, we expect the RBA’s post Board Media Release on Tuesday to repeat the view that “continued low inflation may provide scope for easier policy, should that be appropriate to lend support to demand” the NAB said (our emphasis).

    GDP is going to be a big number for the Australian dollar, stocks and bonds. With the benefit now of mixed business investment partials from this week –- weak construction but flat Capex –- NAB’s forecast for GDP remains at 0.6% for the quarter, with growth over the year likely to print at 2.7%, a little ahead of the RBA’s February is SoMP forecast at 2½%, which is rounded to the nearest ¼%.

International Calendar (courtesy NAB and CommSec)

NZ: ANZ business survey Monday the centrepiece. Building consents and credit aggregates (also Monday), overseas trade indexes Tuesday, then global dairy trade auction Tuesday night, QVNZ housing Wednesday, and building work done Thursday (NAB).

China: The main data focus is Tuesday’s official PMIs and the Caixin manufacturing PMI. The Caixin Services PMI is due Thursday. China unveils its 2016 growth forecast target on Saturday (NAB).

US: It’s a huge week in the US and Commsec’s Sebastian says (our emphasis):

There is plenty of data to watch in the US, however the “star” of the US monthly economic data calendar is the non-farm payrolls (employment) figures on Friday. Economists expect that the good run of results continued in February with 195,000 jobs created. Apart from the jobless rate, the other indicator in the report that will be scrutinised will be the measure of wages. If wages are starting to lift, the Federal Reserve will feel more comfortable continuing the process of “normalising” interest rates.

It’s all about the Fed in 2016.

Elsewhere the NAB says “Tuesday’s ISM manufacturing and Friday’s non-farm payrolls to bookend the week ahead. The Chicago PMI and pending home sales are Monday, ADP employment Wednesday and ISM non-manufacturing Thursday. Fed Beige Book Wednesday with the Fed’s Dudley and Williams speaking. Finally, presidential primaries continue with Super Tuesday.”

Euro: CPI Monday, manufacturing PMIs Tuesday and service PMIs Thursday. ECB’s Lautenschlaeger speaks Tuesday and Coeure Wednesday (NAB).

UK: PMIs Tuesday, Thursday (NAB).

Canada: Current account Monday, GDP Tuesday, trade and Ivey PMI Friday (NAB).