The Week Ahead: Is Red The New Black?

This story features TELSTRA GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: TLS

By Andrew Nelson

It’s a busy week on market calendars both locally and in the northern hemisphere and with little but bad news expected, a week long display of what it means to be in a bear market could be on the cards. But with stocks down almost 40% on the year already and an economic slowdown not so much feared as acknowledged, its not too hard to believe that much of the bad news must already be factored in.

Volatility has been the name of the game of late and given the steady news flow and the shifting definition of good and bad news, volatility will likely remain the name of the game. Given things could go in a million directions for a million possible reasons, this week will be a good litmus test of investor sentiment as Wall Street especially looks at what will probably be one dour economic report after another.

One thing that does look likely is that we’ll at least start off the week on the wrong foot after a late sell-off saw Wall Street finish in the red despite trading most of the day in positive territory. Add to that the worst fall in monthly retail sales ever recorded and we could be looking at trouble. The SPI Overnight fell 64 points. That said, European markets were higher, gold was higher, oil was lower, so its not a completely negative lead in for the week.

In Australia, the Reserve Bank of Australia (RBA) will release the latest issue of its board minutes later today in the wake of its recent surprise decision to cut interest rates by 75b to 5.25% earlier in the month. Later in the week, RBA Governor Glenn Stevens and Assistant Governor Malcolm Edey will deliver what could turn out to be market-moving comments on Tuesday and Wednesday.

Governor Glenn Stevens addresses the Committee for Economic Development of Australia at its annual dinner on Wednesday in Melbourne. while deputy governor, economics, Malcolm Edey fronts an Australia and Japan Economic Outlook conference in Sydney.

Australian data out this week includes retail trade data for the September quarter from the Australian Bureau of Statistics, as well as international merchandise imports data for October. Close to a dozen companies are holding annual general meetings this week, including Telstra ((TLS)) and OneSteel ((OST)), while Macquarie Group ((MQG)) releases its half year result and annual results are due from Lion Nathan ((LNN)).

In the US, both the New York Empire State index and the Philadelphia Fed index are expected to show manufacturing is falling deeper into recession, while reports on housing and leading economic indicators are also forecast to show declines. Cap it off with minutes from the last Fed meeting, which are likely to show the depth central bank’s worries when it cut interest rates last month. There is also a continuation of the recent flood of earnings and data plus PPI and CPI reads that are likely to confirm the prospects for a prolonged economic slowdown.

All of these reports could send stocks lower. But there is also the potential for an upside surprise, particularly as the market seems to be in the process of putting a bear market bottom in place, Paul Mendelsohn, chief investment strategist at Windham Financial Services, told CNN over the weekend.

Japan also faces a busy week, with investors likely to find out if the country is officially in a recession or not. The week sees the release of the country’s third-quarter gross domestic product (GDP) figures. Markets will focus on the Bank of Japan’s latest interest rate decision after a surprise 20bp cut at the Policy Board’s last meeting in October and the week ends with the Japanese government’s Monthly Economic Report for November.

On Monday, Japan’s scheduled to release its 3Q GDP read and its tertiary industry index for September. Across the Tasman, there’s food prices and the performance of service index. In Australia, there’s only retail sales on the economic calendar, while on the corporate side, OneSteel and Goodman Group ((GMG)) host their AGMs.

Tuesday leads off with trade figures from Europe, house prices from the UK and empire manufacturing numbers for November and October industrial production. A little closer to home there’s Japan’s leading and coincident indices for September and 3Q housing loans. In Australia, we’ve got international merchandise imports and of course, the release of the RBA’s minutes from its latest meeting.

There’s a bit on the corporate calendar as well, with Lion Nathan publishing its full year result. Macquarie Group unveils its 1H profit figures and Tatts Group ((TTS)) says hello to its shareholders at the AGM.

Wednesday starts off with the US housing market index, US net long-term TIC flows and producer prices. From Europe there’s September construction output and from the UK it’s October CPI (consumer inflation). On this side of the world there’s Japan’s all industry index and NZ producer prices.

On the domestic front, Westpac puts out its leading index for September and there are also new motor vehicle sales numbers. Four AGMs are on the calendar including Macarthur Coal ((MCC)) and Macquarie Communications Group ((MCG)).

It’s another busy night in the northern hemisphere, with Thursday starting with US CPI and housing starts and building permits for October. More exiting is the release of the latest FOMC minutes, as well as the latest minutes from the Bank of England. Japan puts out October trade numbers, while the Bank of Japan has its monetary policy meeting.

The RBA outs its November bulletin, while another four AGMs are on the cards, including SP Ausnet ((SPN)) and Goodman Fielder ((GFF)).

Friday begins with an important read on UK retail sales and from the US a statement from the Philly Fed along with initial jobless claims and leading indicators for October. Closer to home we’ve got the rate decision from the Bank of Japan, NZ visitor arrivals and October credit card spending.

In Australia, Treasurer Wayne Swan talks economy, while AXA Asia-Pacific ((AXA)) hosts a strategy briefing and Telstra fronts shareholders at its AGM.

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