The Week Ahead: May The Days Be Merry And Bright

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By Andrew Nelson

The week ahead will be a momentous week of either joy or disappointment, with investors hoping equity markets can consolidate the positive performances of last week and begin to build the recovery we’ve all been hoping for.

Key to maintaining positive sentiment will be four crucial factors; US retail figures after the first weekend of the holiday shopping, the continuation of Australian 3Q economic reads with the highpoint being GDP and the last rate decision until February from the RBA. After a total of 200bp worth of cuts since September, ANZ (and almost everyone else) is forecasting a cut of 75bp although there are good arguments for both a smaller or larger move. And then there are data releases in China. According to our information, Monday should see the release of the latest insights into the Chinese manufacturing sector. The October data showed significant weakness. What will November bring?

With good arguments both ways the data released in Australia in the lead up to the board meeting may influence the RBA’s decision on Tuesday. If we’ve learned anything from the minutes of the last couple of meeting, the board is considering information right up until the point they start to deliberate. Key releases to watch will be  domestic retail sales immediately ahead of that release and corporate profits data.

Later on in the week, markets will anxiously receive Australia’s third-quarter gross domestic product (GDP) print. The third-quarter release is expected to show a 0.2% quarter-over-quarter rise, after GDP increased 0.3% in the second quarter. A negative read would be seen as an unexpected negative surprise.
 
The Australian Federal Government is also busy getting its $8.7bn pre-Christmas present ready . There will be bonus payments to carers, pensioners, families and veterans and it is all due for distribution from December 9. But the Commonwealth Bank’s James McIntyre thinks economists may be disappointed in their Christmas wishes, as he expects to see a deficit under the tree just like 2001-02, the last time the Australian economy experienced a downturn following significant global financial market disruption.

The sentiment is echoed by ANZ, which thinks it likely that we will see further fiscal policy stimulus to help soften the economic slowdown. According to the Government, if the economic outlook weakens further, it may respond by increasing spending. In this instance, the budget may return to deficit.

Elsewhere in the region, it’s a relatively quiet week. The Reserve Bank of New Zealand ‘s interest rate decision on Wednesday remains another highlight, but, in Japan, the most significant release is third-quarter capital spending.

In the US, investors will also be dealing with a deluge of economic data, including the November jobs report, that will likely provide more evidence of a deep economic downturn. But key will be reports on the weekend’s retail sales to see if consumers opened their wallets and began buying on Black Friday. The first Friday after Thanksgiving  is the traditional start of the holiday shopping season and usually one of the biggest shopping days of the year. But with an economy now mired in recession, forecasts are grim and the end of easy credit and rising unemployment will be doing little to help consumers.

Retail spending drives the US economy and retail figures will come under close scrutiny even in the best of times. The ability of Americans to keep spending in the face of a deepening downturn is considered key to reigniting growth. Initial indications are that early sales into the Christmas discount season this year have slightly surprised to the upside. Never underestimate the resilience of the US spender seems to be the ealy message coming from this year’s shopping season.

Sales at US retailers for “Black Friday” -the day after Thanksgiving- were up 3% on a year ago according to ShopperTrak data. PayPal, the online payments service, said sales were up 34% on a year ago.

November non-farm payrolls report on Friday is also crucial. With an acceleration in job losses expected, the monthly job figures are likely to highlight concerns about the US economy’s health. Economists polled by Reuters forecast the loss of 316,000 jobs in November, following October’s sharp drop of 240,000 jobs.

Monday starts with 3Q reads on company profits and inventories. Company profits jumped 14% in the June quarter and a further rise, of 5% or more, in the September quarter is expected by Westpac. The bank expects inventories to rise by just 0.3% in the September quarter. That would be the same as last quarter meaning inventory accumulation would be neutral for quarterly GDP growth.

Monday also brings us the November TD-MI inflation gauge.
 
On the corporate calendar we’ve got a few stocks trading ex dividend and an operation overview from energy small cap Mosaic ((MOS)). In China, as stated earlier, the latest PMI read (purchasing manager’s index) should be released on Monday too.

Tuesday kicks off with another bunch of interesting data from the UK and the US, with consumer credit and mortgage approvals from the former and ISM manufacturing and construction spending from the latter. In Australia, we’ll finally get to see how big of a rate cut the RBA is willing to give us. But that’s not the only data slated, with October retail sales and the 3Q current account also out.

Macquarie Countrywide ((MCW))  hosts its AGM and Metcash ((MTS)) puts out its interim results. The latter will provide a good insight into how defensive groceries really are in the current environment.

On Wednesday there’s European PPI to start us off, which will be quickly followed by the much anticipated 3Q GDP read. The numbers will show just how close the Australian economy is to crossing over the line into recession and with most the indicators pointing to a weakish result, there may be just enough juice to keep us in the black.

The corporate calendar gives us little except for a few smaller AGMs and an operations briefing from funds manager Perpetual ((PPT)).

Thursday is a busy morning on the international front, with the European rate decision and retail sales setting the pace. From the UK there’s consumer confidence and PMI numbers, while from the US there will be the Fed’s Beige Book release, 3Q reads on non-farm productivity and labour costs, PMI services, ADP employment and ISM non manufacturing announcements all hitting the streets.

On the domestic front we’ll have October trade and building approvals, while the Kiwis are staring down the barrel of another rate decision. The RBNZ is expected to deliver its Christmas gift of a 100bp cut, with a second 100bp instalment expected in January. National Australia Bank ((NAB)) and Bank of Queensland ((BOQ)), among others, host their AGMs.

Friday is a little slower, with a UK rate decision and US October factory orders the only things out in the north. That said, a BoE rate decision probably warrants a better description than “slower”, but hey, these are fast times. Economists are expecting a 100bp cut from the “The Old Lady of Threadneedle Street”. There is little in the way of local economic news expected on Friday, while the corporate calendar shows a few AGMs, with Orica ((ORI)) the stand out.

That’s about it for the week. If you need to know more you can check the full calendar on the site.

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