Quick Recap: It’s the last week of the month so it’s the usual light peppering of data. But that doesn’t mean it will be a quiet week with stock and commodity markets sliding into the close in the last two days of trade last week and the release this week of the FOMC decision on Wednesday and US Q2 GDP on Thursday.
The equity weakness will be the early driver of markets this week after US markets sank 2% over the course of the week. The Dow lost 2.86%, the Nasdaq dipped 2.33% and the S&P 500 lost 2.19% while the FTSE in London and the DAX in Frankfurt were both down close to 3%. Gold recovered from its lows in the $1,077 region to end the weak at $1,099, down just 3%. Nymex crude finished off more than 6% as concerns over the state of global and Chinese growth along with more oil hitting the market as a result of the Iran nuclear deal.
Maris Ogg, president of Tower Bridge Advisors, summed up the current market thinking by telling MarketWatch that:
Corporate earnings are showing that China is no longer growing at a 7% rate, and no longer fueling commodities demand. So, companies that were dependent on that growth, such as materials and industrials, are suffering. Meanwhile, the positive impact of lower oil prices has not materialized. Markets will need to adjust those expectations.
All of this happened while the US dollar lost a little ground in ‘dollar index’ terms off 0.77% to 88.47 while the euro gained 1.57% on the week and is back above 1.10. The Aussie dollar was the big loser on the week off a little over 1% on the week to close at 0.7275.
The week ahead: US stock markets, and how they react, are the key to everything over the next few months as we move toward the expected Fed hike. That combination makes the Fed interest rate decision at 4am Thursday AEST the highlight for the week.
No-one is expecting any move but the policy statement will be pored over by traders for any clues on whether September has firmed in the mind of policy makers.
Of course one, two or even three moves by the Fed would only take rates to 0.75% and that shouldn’t matter in the grand scheme of investment opportunities. But as Henry Blodget pointed out last week the risks to the market are rising. Technically the S&P 500 on a weekly basis looks like it might be topping. That’s worth watching.
This combination also makes US Q2 GDP, preliminary data, which is expected to jump from -0.2% annualised in Q1 to 2.5% super important for markets. Likewise, traders will treat the release of Durable Goods in the US on Monday night as another key pointer.
In Australia it’s a light week with the release of ANZ-Roy Morgan Consumer Sentiment Tuesday, Export/Import prices, Building Approvals and NAB SME Business Survey Thursday and RBA Credit Friday.
Governor Stevens is talking again on Thursday but after the big revelations of the Anika Foundation speech last week, where he discussed lower potential growth rates for Australia, he is expected to talk on regulation – the theme of the conference he is speaking at.
For the non-traders it’s another two weeks before parliament is back. But the saga over MP entitlements continues and the ALP conference over the weekend and the decision to back Labor Leader Bill Shorten’s plan to have boat turn backs on the table is likely to fuel a lively political debate.
Turning to China and it’s a super light week with only the “official” PMIs to be released next Saturday as the big highlight. Having said that though Industrial Profits on Monday and Consumer Sentiment Wednesday are important now that the world is watching Chinese growth, and the official figures which show 7% GDP growth, more closely.
It’s a busier week in Japan however with the NAB saying:
There’s quite an array of important monthly data on the performance of the economy with retail sales and small business confidence (both Wednesday) and then industrial production (Thursday) the initial picks all on the watch list. It’s the monthly Friday data slug with the June national CPI (July for Tokyo), unemployment/jobs-to-applicants ratio as well as overall household spending.
In Europe the big release is the German Ifo survey along with EU Business Climate/Confidence surveys, and consumer inflation. In the UK in the wake of last week’s weak retail sales data, Q2 GDP on Tuesday night is a huge release for British interest rate traders. Forex traders will be watching closely.
Markets and their performance are more important than data this week. But there are still enough data and events to make for a big one for anyone interested in the direction of the global economy.
Here’s Westpac’s excellent diary of all the data and events that matter for the week ahead.