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

Janet Yellen. Photo: Getty Images

After last week’s hiatus, US stocks continued their Trumponics rally this week with the S&P 500 closing at a record high of 2159. That gain, a little more than 3% on the week, was indicative of equity strength globally as investors bet that Trump’s policies will not only boost the US economy and stocks but markets more broadly.

Of course the ECB’s decision to extend its bond buying program all the way to the end of 2017 also helped underpin the notion that rates will remain lower for longer for many economies.

The FOMC meets this week after US 10-year bonds closed at 2.46%, their highest weekly close since June 2015. Could bonds be the Achilles heel of the stock market rally? We’ll know more at 6am Thursday.

The FOMC is probably the most important but it’s just one of the many notable events and data points this week, including Australian employment, Chinese retail sales and industrial production, and a Bank of England meeting.

Christmas is coming – just not yet.

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  • The FOMC is expected to raise rates in the US this week, but what they think about rates in 2017 is key. This week’s FOMC meeting has a 100% probability of raising rates according to market pricing and the expectations of economists. So the focus is going to be on the FOMC statement, what the “dot-plot” reveals about FOMC members expectations of rate rises over the next three years, and how Janet Yellen frames it all during her post-announcement address.

    That the idea of the dot-plot is as much a construct of the GFC and a no longer required emergency measure as the current level of US cash rates gives me some hope it will be abandoned. But that’s unlikley, so traders will have no choice but to calibrate the expectation with market pricing. That’s important for the US dollar’s rally, the path of long rates and whether or not investors judge rates could be a handbrake on the US stock market rally.

  • Chinese data is picking up again in a sign the world’s two biggest economies are doing well. There are many doomsayers about China. And there is little doubt the challenges facing the economy’s transition and debt problems are considerable. But China, and Chinese data, hasn’t fallen into the hole many pundits thought it would.

    In fact the data has been stronger than expected over recent months and the release of trade and inflation data last week reinforced this trend. That data helped lift the Citibank Economic Surpise Index, a measure of where data prints relative to market expectations, which is close to its highest level this year. That suggests there is still some recalibration of expectations about the path of Chinese growth in the quarters ahead.

  • Citibank Economic Surprise Index (Source: AxiTrader, Reuters Eikon)

Economic Calendar

Australian Calendar
(courtesy NAB Economics, our emphasis)
The main local interest will be Tuesday’s NAB Business Survey and then the ABS Labour Force, both for November, with moderate growth in employment and a steady unemployment rate as the consensus. The Statistician’s House Price Index report for Q3 is out Tuesday with the December Westpac-Melbourne Institute Consumer Sentiment released on Wednesday.

  • Australian Labour Force and the NAB business survey. Australia’s monthly lottery of jobs data is drawn again Thursday with the NAB expecting a rise of 13,000 and an unemployment rate of 5.6%. But it does highlight unemployment, rather than the monthly change in employment, which is now their favoured measure.

    After last week’s appalling Q3 GDP data, I’m more interested to see if the NAB business survey supports last week’s release both the Dun and Bradstreet and Westpac business surveys.

    The NAB says its monthly survey “has been pointing to some moderation in the non-mining recovery” but even so conditions “remain at above average levels and business confidence has been tracking broadly sideways for some time”. Will that continue? It’s important for the outlook on the economy, rates, and the Aussie dollar.

International Calendar
(courtesy NAB Economics)
Global : OPEC and (some) non-OPEC producing countries meet tomorrow in an effort to hammer out an agreement on production cuts. Then the focus shifts to Wednesday’s FOMC where a US rate hike is guaranteed. Datawise, China’s Tuesday monthly activity indicators and Wednesday’s BoJ Tankan business survey will be watched closely, along with US retail sales and US CPI. The UK and Swiss central banks also meet.

US: The Fed is the main interest, a hike priced in with focus on refreshed Fed forecasts and Yellen’s press conference views that should remain cautiously upbeat. The key data starts with Retail Sales, PPI, Industrial Production and Business Inventories on Wednesday, then CPI on Thursday and Housing Starts and Fed President Jeffrey Lacker (non-voter this year and next) speaking Friday.

China: Tuesday’s November readings on industrial production, retail sales, and fixed assets investment growth will be a major focus, with November’s new yuan loans and aggregate financing reports due any day.

Japan: Wednesday’s Tankan and Industrial Production reports are the main interest.

Euro: Thursday’s final November PMIs and Friday’s CPI are the key focus.

UK: CPI, PPI, and House prices on Tuesday, Labour Market, Wednesday, then Retail Sales and the BoE meeting on Thursday. CBI Trends is out Friday.

Canada: Quiet, with only House Prices (Wednesday) and Manufacturing Sales (Thursday).

NZ: Three key indicators for Q3 GDP (likely) are released this week: Wholesale Trade, Manufacturing Sales, and Building Work reports. These will be complemented by November data on housing and manufacturing, along with a December consumer confidence measure. And Monday’s affirmation of New Zealand’s new Prime Minister will be a reminder to get abreast of politics/policy as we head to an election next year.

And here is the NAB’s excellent calendar of all the key data and events for the week ahead.

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