The Week Ahead: The Melbourne Cup Hangover?

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By Greg Peel

Ask not for whom the worm turns, it turns for thee.

The people, the pundits and especially the rogue worm gave the debate to Mr Rudd last night. The all-people polls also hand Rudd victory, but wise heads suggest winning the 16 specific seats required for a new government is still in no way a given. The worm might disagree, but the worm also gave victory to Latham, Beazley, and even Howard over Keating in 1993.

What may, however, seal the Coalition’s fate is a rate rise on November 7 – seventeen days before the election. While economists are beginning to think a November rate rise is a pretty good bet anyway (and a shoe-in by February), consensus is that the September quarter CPI, released on Wednesday, will tip the balance. The market is predicting an underlying (core) rate of 0.8%, and suggests a figure of 0.9% would seal the deal. 0.8% might still be enough, while 0.7% is seen as perhaps sufficient to hold off till next time – or maybe not.

The CPI is the highlight in an otherwise blank week for Australian economic data, although a clue will be provided by today’s September quarter PPI release. We do also get October skilled vacancies on Wednesday.

New Zealand will also learn its rate fate on Thursday, but expectation is for the RBNZ to remain on hold. The Kiwis will hold an official national day of mourning for the World Cup today (otherwise known as Labour Day) where thanks will be given that at least Australia also bowed out in the quarters. Good luck today to all Australians who work in offices with South African colleagues, and be thankful for what otherwise might have been.

China also releases its CPI result this week for the month of September – perhaps. China does not provide hard and fast timetables for economic data. To that end we also may or may not learn third quarter GDP and September industrial production. China’s September CPI is expected to slip to 6.3% from August’s 6.5%, mainly due to an easing of pork prices.

And Japan, too, releases its September CPI, on Friday. The yen has begun to rise once more as the US dollar tumbles, suggesting that risk-taking is again being curbed. A stronger than expected Japanese CPI could be interesting for the yen, and subsequently for the Aussie dollar.

The mood has turned in the US. Friday night’s sell-off is an indication that Americans have begun to see the potential for another rate cut for what it is – a confirmation that the economy is in serious trouble, rather than a reason to be smug. It may now be that subsequent poor economic data will be treated more as an indication of such, and less of a reason to buy.

The Richmond Fed releases its economic index on Tuesday, while Wednesday brings September existing home sales. Thursday has September new home sales and durable goods orders. While the first two are expected to be weak anyway, a bad number on the third may be telling. Friday sees the Michigan U consumer confidence measure.

On the local front it’s a big week for third quarter production reports amongst the resource stocks, the highlight being BHP Billiton ((BHP)) on Tuesday. Woolies ((WOW)) also releases it’s first quarter sales on Tuesday. ANZ ((ANZ)) and Ten ((TEN)) release full year results this week. For these dates, all production report dates, and for all the information on a raft of AGMs this week, please refer to the FNArena calendar.

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