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

Inflation data this week is the key for local traders. (Photo by Matt Cardy/Getty Images)

US stocks ended the week at a new closing high which helped keep the US dollar strong. That in turn kept the pressure on currencies and commodities and kept bond rates relatively elevated.

Usually those trends would continue into month end with the last week of any given month often a quiet one, ending with a whimper on the data and events front. But July is different. This week, whether here in Australia or across global markets, we are ending the month with a raft of super important events. Wednesday is the big one with the release of Oz CPI, UK Q2 GDP, US Durable Goods and of course the FOMC announcement. No move expected but there is a really big chance that the Fed signals the next meeting in September is live.

Thursday sees the release of Japanese CPI in the run up the BoJ meeting on Friday – Helicopter Kuroda anyone? – and then of course, because it’s Friday we get big data from the US to end the week in the form of US Q2 GDP. EU GDP is also out.

And then it’s August, with the Olympics and the potential that traders in the US go on holidays. That could add a little bit to any volatility the data creates.

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  • Australian CPI (courtesy of the NAB). All eyes will be on Wednesday’s Q2 CPI and whether the outcome clearly tilts the balance one way or the other as far as the August RBA board meeting outcome is concerned. There is no doubt that the meeting is “live” and contingent on Wednesday’s Q2 CPI outcome. The market consensus outcome for Wednesday’s CPI is 0.4% q/q for both headline and underlying inflation, and with that background the market is currently pricing a 69% chance the RBA cuts rates the following week.

    In contrast, NAB’s economic modelling of prices and its tracking of goods and services prices points to a close but on-hold outcome for the August board meeting. We expect headline inflation to have risen 0.7% q/q, resulting in an annual inflation rate of 1.4%, buoyed this quarter by increases in petrol prices and in fruit and vegetable prices.

    As for the underlying inflation rate, NAB expects that to average a low 0.5% q/q, an outcome that we assess would be sufficient for the RBA to be on hold. NAB reads the RBA’s May forecast track for underlying inflation as an outcome of 0.4%, so an outcome of around 0.5% would be a comfortable enough read for the central bank and give it confidence that its forecast of inflation getting back to the 2-3% target band by 2018 remains on track.

    For markets, a core CPI print of below 0.4% for the quarter would further extend market pricing for a 25 basis points rate cut in August. A core CPI print of 0.5% or above would see the market unwind market pricing of an easing.

  • US Earning Season begins – can stocks rally?

Economic Calendar

Australian Calendar – (again, courtesy NAB Economics)

Other data due this week includes merchandise export and import prices for the June quarter set for release on Thursday which will provide a good lead on Australia’s terms of trade for the quarter (Chart 3). There is also NAB’s Small Business Survey on Thursday, with the week finishing with Friday’s release of RBA Credit for June.

As far as merchandise trade prices are concerned, it’s been evident that bulk commodity prices have been sufficiently stable over recent months. For next week’s merchandise trade prices, NAB looks for a gain in export trade prices of 1.3%, somewhat less than an expected 3.2% rise in imports, supported this quarter by higher oil prices.

The last economic release is RBA credit for June, out Friday. For some months now, housing credit growth has been slowing in trend terms. Investor housing growth has averaged just 0.4% so far this year, well down from growth of 0.8% in the first half of last year, while growth in owner-occupied housing credit has overall been much steadier at around 0.6% per month. We look for this trend to continue in June.

Business credit however has been on a modest uptrend, though has been very volatile on a monthly basis. In May, business credit grew by 0.3%, below its six monthly average run rate of 0.6%, suggestive that business credit growth in June has some modest upside risk and pointing to a forecast for RBA credit to increase by 0.5% from 0.4% in May.

International Calendar (also courtesy NAB Market Economics)

Global: G20 over the weekend has been more of the same.

US: Wednesday’s FOMC meeting the major focus. There’s also a further splurge of data ahead of Friday’s Q2 Advance GDP print. Other data includes the Conference Board’s Consumer Confidence and New Home Sales reports on Tuesday, Durable Goods Orders on Wednesday, the Advanced Goods Trade report on Thursday, and the UoM updated July Consumer Sentiment survey on Friday. The Fed’s John Williams speaks on Friday.

China: Very light with industrial profits on Wednesday.

Japan: The market is paying close attention to developing news on forthcoming Japanese monetary and fiscal policy in the lead up to the BoJ meeting on Friday. It’s relatively quiet data-wise ahead of Friday morning’s data deluge including the monthly Labour Market, CPI, Industrial Production, Household Spending and Retail Sales reports.

Euro: German If0 survey on Monday, and its CPI on Thursday. The Eurozone also has CPI on Friday along with the first cut of Q2 GDP.

UK: The CBI Trends survey on Monday, Q2 GDP and the July CBI Retail Survey on Wednesday, and July readings from the Lloyds Business Barometer and GFK consumer confidence on Friday might also draw some market interest.

Canada: A very quiet week lies ahead with May month GDP the pick, out Friday.

NZ: RBNZ governor Wheeler speaks on Monday, though not in public. For data, there is Trade and Residential Lending on Tuesday, then Building Permits, the ANZ Business Survey, and Credit Aggregates on Friday.

Here’s the NAB’s excellent calendar of all the key events across the globe.

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