The Week Ahead: Taking It Up A Notch

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By Andrew Nelson

This week’s calendar is a busy one and there will be no rest for the wicked, or most anyone else for that matter, with a full card in the US and In Australia. Economic news will feature, of course, but there’s also a busy company calendar, with outlook statements from US retailers and a dozen or more AGMs booked in for local companies.

With the Reserve Bank of Australia bank now having made 175bp worth of interest rate cuts over a time period of less than one month, it would be a brave man that could bet that Monday’s release of the quarterly monetary policy statement won’t see some sort of reaction from the market. It is with this latest diagnosis of the Australian economy that we’ll begin the week with.

That and a surprise run on Wall Street on Friday. After a couple of big down days and a 10% drop on the week, the looming prospect of an ugly October jobs number read on Friday made it likely matters were not going to be pretty for US investors. The way things have been working lately, a bad Friday on Wall Street means a bad Monday on Bridge Street. The job numbers were as ugly as expected, but at least the weak read was expected, so investors shrugged it off and focused on President Elect Obama’s promise of more financial stimulus to come.

Obama takes centre stage in the markets next week, with the selection of a new Treasury secretary the next big issue that will have investors preoccupied. As the last few months have shown us, the Treasury post is a critical position in the president’s cabinet and with financial markets still under a heap of stress and the US economy potentially hurtling towards deep recession, this is looking like being one of the most important cabinet nominations the country has seen in modern times.

As long as the pick is a reasonable one (and it would be hard to imagine it wouldn’t be), the market will most likely rally in relief. But that relief will most likely be very short-lived as another tidal wave of fund redemptions are due to hit soon, with the looming November 15 window for fund redemptions fast approaching. 

US investors will also be paying close attention to the earnings outlooks of big name retailers Wal-Mart, JC Penney  and Kohl’s Corp, although I can’t imagine much good news coming from any of them given that already plummeting sales indicate this will probably be the weakest holiday shopping season in decades. Add to that a government report on retail sales and earnings from Wal-Mart Stores and there’s an increasing possibility of bad news overload.

Monday proper starts with NZ house prices and Japan machine orders. Economists from Barclays Capital are anticipating weaker figures for Japan’s September machine orders report, against consensus forecasts for a 5.0% month-over-month rise and 5.3% year-over-year drop in machine orders. But machine orders is just the beginning of what will be a busy week for Japanese markets, with corporate goods price index and industrial production data for the country all being released later in the week as well.

On the domestic front there’s housing finance numbers and the RBA’s quarterly monetary policy statement. As far as the housing numbers go, ANZ Bank expects to see more evidence of poor property market sentiment, which points to another fall in approvals despite a rate cut in the month.

As far as the RBA goes, it is currently being speculated that growth projections will probably be lowered some more, but inflation projections will still be little changed. There’s no doubt that further rate cuts are likely, but depending on the inflation situation, the next cut may not be the 50bp that all are banking on.

Commonwealth Bank Chief Economist Michael Blythe thinks that this November’s Statement will probably be less important than usual given there is a pretty clear picture of what the central bank is thinking here and what they are thinking in the rest of the world. Limiting the damage caused by the global financial crisis is the name of the game right now and the RBA’s big and seemingly only club is the element of surprise. Given that’s about their only weapon, one could well expect the bank will be reluctant to tip too many of its cards.

Tuesday starts us off with Monday’s data from the northern hemisphere, including European investor confidence for November and UK PPI results for October. It’s not a very interesting day on the Australian calendar, with just the NAB Business Survey scheduled.  There is, however, a bit more on around the region, with Japan’s current account and trade balance figures being released along with PPI figures from New Zealand.

Insurance Australia Group ((IAG)) will host an interesting AGM, as will Computershare ((CPU)), while a few loose dividends get paid out.

Wednesday begins with an assessment of economic sentiment figures from Europe, house prices and retail sales from the UK and a read on US economic optimism. In the region, there’s Japanese consumer confidence and the RBNZ financial stability review. It’s a busy day for economists in Australia, with the 3Q wage cost index, November consumer sentiment, September lending finance and a speech from Treasury Secretary Ken Henry all on the cards. Economists at ANZ expect that increasing uncertainty over the current outlook is likely to have seen wages growth stay steady at a high level in Q3.

Meanwhile, the Treasury Secretary will address the National Press Club, with a spirited defence of the Government’s policy response to the global financial crisis and the latest MYEFO economic forecasts expected.

There’s little on the corporate calendar except ANZ Bank’s ((ANZ)) AGM and SingTel’s ((SGT)) half year results.

Europe and the UK are the focus of Thursday morning, with European industrial production numbers and the Bank of England’s inflation report taking centre stake. There will also be jobless claims and average earnings data out of the UK. On the local front we’ve got unemployment and weekly wage data as well as consumer inflation expectations for November.

There are a number of big ticket AGMs on Thursday, including BlueScope ((BSL)), Commonwealth Bank ((CBA)), Fairfax ((FXJ)), Lend Lease((LLC)) and Wesfarmers ((WES)). Also on the cards is an interim result from everybody’s favourite Dutch company, James Hardie ((JHX)), while St George ((SGB)) has a scheme meeting to discuss the Westpac ((WBC)) takeover.

Friday is quiet on the local front, with nothing but state accounts from 2007-2008 on the economics calendar and only Mirvac’s ((MGR)) AGM on the company calendar. There will be a big bag of data from the other side of the globe, with European GDP taking centre stage. There’s also European CPI numbers, UK import prices and consumer confidence, retail sales and business inventories all coming out of the US.

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