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

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The old axiom that traders should sell stocks in May, and go away, hasn’t worked so well in 2016. Certainly the rally has stalled and volatility, as we saw last week, has been high, but price action suggests more comfort than fear in the outlook.

Whether in Australia, the US, or in other markets the intra-range volatility has been high as traders ride an emotional rollercoaster.

Australia releases important partial indicators this week – construction work and Capex for Q2 GDP – while the US will release its latest read on GDP and consumer confidence.

Add in remarks from RBA governor Glenn Stevens on Tuesday and a speech from Janet Yellen Friday and the scene is set for another huge week ahead.

Top Stories

  • RBA, interest rates, and the Australian dollar. Monetary policy doesn’t exist in a vacuum. What a central bank says is often as important as what it does. Nowhere recently has this been more obvious than the RBA’s rate cut and downgrading of inflation forecasts for Australia.

    Whether intended or not, these moves combined to significantly impact Australian markets. The dollar has fallen 6.5%, from 0.7719 shortly before the RBA decision on May 3 to a 0.7219 close on Friday. That, in turn, is in no small part because economists have fallen over themselves to downgrade forecasts for the terminal cash rate in Australia to 1%, possibly lower.

    But as outgoing RBA board member John Edwards told the Wall Street Journal on Friday the bank’s inflation target is not a hard rule but rather a something to be achieved through the cycle. Likewise, former RBA governor Ian Macfarlane poured cold water on the big calls for RBA rate cuts last Friday as well. That sets up a very interesting set of remarks to be delivered by RBA governor Glenn Stevens at the Trans-Tasman Business Circle boardroom briefing in Sydney at 1.05pm Tuesday.

  • Can US and global stocks survive a Fed hike and a reappraisal of the accuracy of corporate earnings? If you’re a regular reader of Business Insider you probably picked up on two big stories last week. The first was both Fed speakers and the bank’s minutes warning that June is a live meeting for a rate hike. The second is that investors, and particularly hedge fund managers like Carson Block and other big money managers, are losing patience with financial engineering as a way of improving the earnings picture.

    Myles Udland had another important piece on this growing topic of concern Friday. His articles on how much America’s biggest companies bent the truth about earnings this year.

    The S&P 500 closed the week marginally higher after a wild ride of multiple 1% moves during the week. That suggests traders are confused. How the debate about earnings and the Fed is resolved will determine the outlook for stocks in the months ahead. In also means Janet Yellen’s speech on Friday is a huge event for the market.

Economic Calendar

Australian Calender – (courtesy NAB Economics) This week sees the start of the March quarter GDP partials (out June 1) with the release of Construction Work Done on Wednesday and New Private Capital Expenditure (capEx) on Thursday, together providing the main elements of residential and business investment spending.

Other than these two releases it’s a second tier data week with the release of Weekly Consumer Confidence on Tuesday and Skilled Vacancies on Wednesday to complete the data set.

But the highlight is likely to be RBA Governor Stevens’ remarks at a business briefing on Tuesday in Sydney. This will be closely watched given it is the first opportunity for the governor to speak on the economy since the decision to cut rates at the May Board meeting. It is only a Q&A session, so traders will have to watch their Bloomberg and Reuters terminals as there are no prepared remarks.

  • CapEx: The NAB’s economics team says the market will be looking at two main elements of the Capex data when it is released this week.

    1. The actual volume change in Capex in the quarter. NAB expects a decline of 5% as further declines in mining expenditure from the wind down in major LNG project spending continues. Such unwind is likely to be concentrated more in WA and we expect expenditure to progressively decline over the next year as Gorgon and Wheatstone become progressively complete. Already full-year estimates of Capex for the current 2015-16 foreshadow a sharp decline in spending in the second (current) half of this financial year and this places some downside risks to our -5% expectation.

    2. The second estimate of expenditure expectations for 2016-17. Based on some usual firming in project spending that occurs in the lead up to the start of the financial year, NAB expects that the first estimate of $82.6 billion will be revised up somewhat to a current estimate of $92.3 billion. That could yet get some assistance from a steady-to-higher uplift in business confidence, conditions and capacity utilisation through April when the Capex survey was undertaken.

International Calender (also courtesy NAB Market Economics)

Global : G7 Meeting over the weekend.

US: New home sales on Tuesday, Trade Balance and Weekly Jobless Claims Thursday, Durable Goods Orders, Pending Home Sales, revised Q1 GDP, and final May UoM Consumer Sentiment on Friday. Fed speeches aplenty with Yellen Friday the highlight; before then we get Bullard, Williams, Harker, Kashkari, Kaplan, and Powell.

China: A light data week, with only be Conference Board’s Leading index on Tuesday, Consumer Sentiment on Wednesday, and Industrial Profits on Friday.

Euro: preliminary Markit PMIS on Monday, German GDP and ZEW surveys Tuesday and German Ifo survey Wednesday.

UK: Monthly public finances and CBI surveys on Tuesday, Q1 GDP Thursday. Eurozone finance ministers also meet Tuesday to discuss the Greek bailout package (again) and with their full EU compatriots on Wednesday.

Canada: The BOC’s rate decision on Wednesday is the main event with an unchanged rate universally expected.

NZ: Budget week. Not just the government’s (Thursday), also Fonterra’s opening 2016/17 milk price forecast is expected sometime this week. Also due, Trade and New Residential Lending on Wednesday.

And here is the NAB’s excellent diary of all the key data and events in the week ahead:

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