US CPI data is out and the Fed is holding its annual confab at Jackson Hole this week, but as we enter the second half of the month it is likely to be much quieter than the first fortnight with the usual slowdown in data and events.
Traders will be relieved that after last week’s tumultuous trade when moves by the PBOC to devalue the yuan caught everyone on the hop and knocked stock, bond, commodity and currency markets for six.
The CRB made a fresh 11-year low, crude oil collapsed again to new 6-year lows finishing the week at $42.50 a barrel, while the Aussie dollar was hammered down to a low of 0.7216 against the USD before rallying to finish the week at 0.7369.
While it didn’t help commodity markets – and bonds still think there is a chance China has upset the Fed’s path toward tightening in clarifying its intentions on Wednesday – the PBOC was able to diffuse the worst of the stock market reaction in the US at least, which allowed Wall Street to climb back into the black for the week. The Dow, which had a death cross – where the 50-day moving average closes below the 200-day moving average – even finished up 0.60% to 17,477, the Nasdaq was up 0.1% to 5,048 ,and the bellwether S&P 500 finished up 14 points, or 0.69%, to 2,092.
Europe was a very different story with the big early-week losses remaining on the boards. The FTSE ended down 2.49% for the week while in Frankfurt and Paris the weakness was acute with the indices losing 4.4% and 3.86% respectively.
In Asia the Nikkei was down 0.99%, the Hang Seng off 2.29%, but the Shanghai market marched to the beat of its own drum.
The Australian market was under pressure all last week with falls in commodities and continued concerns about capital raisings at the banks weighing. The ASX 200 finished the week off 2.15% and well below the big uptrend line stretching back to 2012.
With commodity markets still pressured and the banks expected to need to raise further capital – Westpac is yet to tell shareholders or the market what it’s looking to do – the ASX might continue to struggle.
Turning to the data flow, there isn’t much by way of releases this week in Australia. In its weekly ‘What to Watch’ the NAB’s market economics team said:
There is only a few second tier reports with the likes of the weekly ANZ-Roy Morgan Consumer Sentiment index on Tuesday, along with July motor vehicle sales, followed by the Westpac Leading Index and Skilled Vacancies for July, followed Thursday by the monthly FX transactions data from the RBA. None of these reports is likely to draw too much interest though motor vehicle sales would be an obvious candidate for small business spending in the wake of the Federal May Budget’s $20,000 immediate depreciation write-off provision.
The minutes to the RBA’s Board meeting this month are also out on Tuesday, but given we’ve already seen the release of the quarterly Statement on Monetary Policy, the NAB’s economists said this would be an uneventful release. They highlighted “the market is continuing to price in the 70-75% possibility of an easing over the next nine to 12 months.”
That is something Westpac chief economist Bill Evans can’t quite fathom it seems. Writing in his excellent Australia and New Zealand weekly Evans said “we have been surprised that markets have persisted in maintaining a 90% probability of another 25 basis point rate cut by the RBA by mid next year and a 50% probability of a cut by November.”
Perhaps there might be something in the minutes after all to challenge this notion.
Offshore forex traders are increasingly watching New Zealand’s dairy auction and making bets on the Kiwi as a result, so the auction Wednesday will be important. Also out across the Tasman this week is the PSI Services index on Monday, PPI Wednesday, ANZ job ads Thursday, Friday net migration and credit card billings.
China has house prices on Tuesday and then the MNI Business Index on Thursday while in the United States the NAHB Housing index is out Monday, and housing starts/permits are out Tuesday night. The UK has CPI out Tuesday as well. That will be important to help inform the debate about what the BoE is going to do on interest rates, and when.
Wednesday is probably the highlight on the global data calendar with the release of the CPI for July. Given Fed vice-chair Stanley Fischer said last week the Fed was watching inflation and their target for it to get back to 2%, and given that crude continues to fall, traders in currency bond and stock markets will be watching for clues. That means the latest Fed minutes, released Wednesday night, will also be important.
Existing home sales, the Philly Fed Index and the Leading Index are out Thursday. On the speaker front we hear from both Minneapolis Fed President Narayana Kocherlakota and San Francisco President John Williams. Williams is seen as particularly close to Fed chair Yellen. They are both speaking in Asia, so they might be asked about last week’s moves by China – watch that space. And as mentioned earlier, Jackson Hole also kicks off.
Friday is pretty quiet with the release of the Gfk consumer confidence survey in Germany. Canadian dollar traders will be watching the release of CPI data closely.
So not a huge week, but still plenty to watch.
Here’s Westpac’s excellent calender of all the key data and events.