The Week Ahead: Aussie Jobs The Next Indicator

This story features INSURANCE AUSTRALIA GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: IAG

By Greg Peel

We begin this week in the knowledge that the ASX 200 index has indeed found support at 5000. The level is unlikely to be tested again on Monday, given no lead-in from Wall Street. Wall Street will return on Monday night, however, in the knowledge that not only have key support levels been broken in the Dow and Nasdaq, both are also down 20% from the high and thus officially in bear market territory.

This label is unlikely to make much of a difference. There will be as many in the market who scoff at such labels as there are those who quake, but there’s no denying the “bear market” claim will play on sentiment. The most important index – the S&P 500 – is nevertheless not yet in bear market territory nor below its March intraday low, although it is very close to both. It will all come down to the direction in the price of oil as to whether these levels will be broken in the short term. When we left the Americans in holiday mode last week, the greenback was feeling a little more healthy, but so many other factors linger around the oil market as well.

As far as economic data go, this is not a big week. However in Australia we do learn the monthly employment figures which are another important piece of the interest rate puzzle. Having passed through the July meeting unscathed, attention now turns to the all-important August meeting. It is all-important because on July 23 we will learn the second quarter CPI. Nevertheless, the RBA has indicated it will probably take a scary CPI reading in its stride, given it expects the constraints of high interest rates and petrol prices to create a sufficient drag on demand ahead. What is more important is a blow-out in the terms of trade. Also important are signs of a wage-price spiral, although the RBA dropped this warning out of its last statement. The committee was clearly pleased with the slight rise in unemployment in May, and will probably be hoping for a similar June reading

We begin the economic week on Monday with the ANZ job ads figures for June and the June AiG performance of construction index. Tuesday brings June business conditions and confidence, and Wednesday May housing finance and the Melbourne Institute measure of consumer confidence for July. Thursday is employment day, along with another very important indicator – the July measure of consumer inflation expectations. Friday we can go to lunch.

The US week begins on Tuesday with May wholesale inventories, consumer credit, and pending house sales. Other than the weekly jobless claims on Thursday there’s nothing else until the Friday trade figures for May, June import prices and the Michigan Uni July consumer confidence measure.

The European Union releases its first quarter GDP on Wednesday, and the Bank of England makes a rate decision on Thursday. The tip is that BoE will follow the ECB and raise by 25 basis points, although once again there’s trouble in the British banking sector.

Of interest on the local stock front this week will be the Insurance Group of Australia’s ((IAG)) strategy briefing on Wednesday. Analysts are split on what might happen here, with one camp suggesting a “clear the decks” dividend cut from the new CEO and the other suggesting this would open the doors for another swing from QBE ((QBE)). IAG also has excess franking credits, and may prefer to maintain its dividend and use these up. Either way, Mike Wilkins is expected to put the proverbial broom through the troubled insurer.

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