The Week Ahead: It’s Mostly About America

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By Andrew Nelson

Wall Street might have posted a positive week last week, but the looming demise of Lehman Brothers is just another indicator that storm clouds are brewing anew for the US financial sector. As at Monday morning, Sydney time, it appears nobody is willing to buy the troubled investment banker in the absence of US government support. An orderly unwinding seems to be the only orchestrated option left.

The futures market opened on Sunday to allow traders to adjust positions as hurricane Ike was belting Texas. The result has been that West Texas Intermediate contracts dropped below the magical US$100 per barrel.

Key this week for local investors will be the minutes from the RBA’s September meeting, which will be dissected ad infinitum for details of the bank’s interpretation of a clearly slowing Australian economy.

Reserve bank Governor Steven is also scheduled to speak to the Australian Institute of Company Directors, with investors hoping for more clarity following last week’s run of data. All in all, an October rate cut is increasingly less likely, with many thinking the RBA will take a wait and see approach, at least in the short term.

As much attention will be levelled on the US economy as the local, with US mortgage defaults continuing to rise and house prices continuing to fall and the nation’s largest savings and loan, Washington Mutual, now joining Lehman brothers on the list of likely casualties. Despite trying to reassure the market on Friday, Moody’s has downgraded WaMu to below investment grade on suspicions of inadequate financial flexibility. According to US press reports over the weekend, WaMu’s future also featured in the emergency meetings between Fed officials and bankers.

On Monday here we’re looking at divs, divs and more divs, with more than 20 on the cards. The highlights are AMP ((AMP)), Brambles ((BXB)), and Spotless ((SPT)). On the economics front there is NZ manufacturing activity, with economists expecting a weak result, as slowing global growth continues to weigh on manufacturer’s outlooks.

We’ll also get a look at Australian Q2 dwelling commencements, with a downturn in Q2 approvals likely to flow through to a drop in Q2 dwelling starts. The Commonwealth Bank is one that is expecting a decline, but a small one, with a pick up expected not too far down the track.

Tuesday starts off with European labour numbers and US manufacturing and industrial production data, with the market expecting rather benign reads for the latter two, following stable reads over the last few months.

RBA minutes following later in the morning, but will probably be overshadowed in some part the Governor’s speech to industry leaders later in the week. The dividend flow is lighter, with only about ten on the cards including CSL ((CSL)), Skilled Group ((SKE)) and Super Cheap Auto ((SUL)).
 
Wednesday sees US, UK and European CPI releases. Of key concern will be the US read, with Westpac expecting CPI to have reduced, if only marginally. It believes this should signal a beginning of significant falls in the headline rate over the remainder of 2008, with lower gasoline and food prices helping to put a cap on inflation over the next few months. Good news if it pans out.

The Fed fund rate decision is also out, with nothing in the current environment likely to give the US central bank any reason to start raising rates, although the expectation of easing inflation in the months to come could see a change to slightly more agressive language.

Locally, the July Westpac-MI Leading Index, which indicates the likely pace of economic activity three to nine months into the future, will be released and closely watched. The day also sees a rate decision from the BoJ, again with little expected, and we’ll also have Alumina Ltd ((AWC)) paying a 12c dividend.

Thursday starts with minutes from the Bank of England’s latest rate meeting, US current accounts, housing starts and building permits and some more comment from the BoJ. US August housing starts will be closely watched after jumping 10% in July. While a slight fall is expected, both Westpac and CBA expect the data to show, if not an improvement, at least a stabilisation in the US housing market.

In Australia, the Q3 Westpac-ACCI Survey results will be released, giving an important insight as to whether Australian economic conditions have deteriorated to a below trend rate. There are less than ten dividends slated for the day, with Centennial Coal Company ((CEY)) and Challenger Financial Services ((CGF)) the interesting ones.

Friday winds us back down again, with UK retail sales and US leading indicators being the main overseas reads, while nothing on the domestic economic calendar except for a handful of ex-dividends.

For more detail, you can check the FNArena calendar on the site.

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