The Monday Report

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

By Greg Peel

A week ago saw meetings of the IMF, World Bank, G7 and G20 at which no resolution on the world's current Currency War was reached. However, the War had never been an intended agenda item. Over the weekend however, the G20 finance ministers met in South Korea and this time currency was a major issue.

No one ever expects much in the way of concrete decision making at a G20 meeting, and this one didn't disappoint. As the Wall Street Journal put it:

“The Group of 20 nations are pursuing an accord to end battles over currencies that relies on goodwill and peer pressure to persuade countries to comply with internationally agreed norms rather than enforceable sanctions.”

Sir Humphrey Appleby would have been proud.

The ministers agreed to maintain trade balances at “sustainable levels” as determined by yet to be decided upon “indicative guidelines” which the IMF would then umpire. The ongoing global joke is, of course, that most of the hot air is coming out of the US camp. Secretary Geithner pushed for specific limits on trade balances and again harassed China over currency revaluation all the while knowing the Fed is about to force upon the world potentially extensive reserve currency devaluation in the form of QE2. There's one rule for America and another for everybody else.

Despite not expecting any G20 bombshells, markets were quiet in Friday night trade just in case. There were no US economic data releases to ponder which left share price movements up to earnings reports, and they were mixed. The end result was a Dow off 14 points or 0.1%, a Nasdaq up 0.8%, and an S&P splitting the difference with a 0.2% gain to 1183. Currency markets failed to respond to an unexpected rise in Germany's IFO business climate index. 

The US dollar index was steady at 77.41 and the Aussie ticked up a bit to US$0.9808. Gold was steady at US$1328.00/oz while base metals were mostly steady too, albeit lead and zinc shot up 2-3% on news of the closure of a Chinese smelter.

Crude oil rose US$1.13 to US$81.69/bbl, dragged up by gasoline and diesel prices which tightened due to announced strikes in France.

The SPI Overnight lost 4 points.

With a third of the companies in the S&P 500 now having reported, 75% have beat earnings forecasts. This has helped the US stock market to a third consecutive week of gains, supported by a safety net of QE2 expectation. More earnings reports will flow this week but we still have to wait until the middle of next week for the FOMC meeting and anticipated QE2 announcement. Hands up anybody else who's sick of waiting.

Housing will be in the frame in the US this week. Tonight sees existing home sales along with the Chicago Fed national activity index, Tuesday sees both the Case-Shiller and FHFA house price indices along with the Conference Board consumer confidence survey, and Wednesday brings new home sales along with durable goods orders.

Friday will be the biggie, as along with the Chicago region PMI and the Michigan Uni fortnightly consumer confidence survey will be the first estimate of US third quarter GDP. The first estimate measures GDP growth in the first month of the quarter – July in this case – and extrapolates a quarterly result. The consensus estimate currently sits at 1.9% growth and the Fed will be keeping a close eye before its meeting the following week.

Here's a question: Can Glenn Stevens get on the phone to Ben Bernanke some time before Melbourne Cup Day and ask him straight out what level of QE2 he intends to announce on the day after? Were that announcement to surprise the market to the upside, which would require, say, US$1.5 trillion of QE2 rather than the US$500bn being currently touted, it is quite possible the Aussie dollar may well shoot through parity and beyond. 

An Aussie shooting through parity and looking like it will stay there acts as a natural hedge against inflation, as the RBA specifically pointed out in the minutes of its last meeting. This would take the pressure off any need for a local rate rise on the Tuesday, notwithstanding the expectation that banks will raise their mortgage rates anyway being another reason why the RBA may hold steady once more.

Inside information swapping amongst central bankers aside, this week is inflation week in Australia with the third quarter producer price index due out today and the consumer price index on Wednesday. The key will not be the headline CPI, but the RBA's trimmed mean which will need to stay under 3% if the RBA is to decide to hold fast. That in itself is not a guarantee, however. We may learn a little more about the way Stevens is leaning today given he is due to speak in Canberra.

We will also learn the NAB business confidence assessment for the third quarter on Tuesday and the Conference Board leading economic index on Thursday. Friday will be important for the RBA, given new home sales and the RP Data-Rismark house price index are released along with September private sector credit growth (or lack thereof).

It will be a crucial week for Japan this week given a raft of economic data releases and a Bank of Japan monetary policy decision due at a time when the yen is again under severe upward pressure against the US dollar. Thursday will also see a rate decision in New Zealand.

On the local stock front, there are about a million AGMs being held this week and a few leftover resource sector quarterly production reports. It will also be a crucial week for the banks.

ANZ Bank ((ANZ)) reports its full-year earnings on Wednesday followed by National Bank ((NAB)) on Thursday. Westpac's ((WBC)) result is due the day after the Cup and RBA meeting while Macquarie Group ((MQG)) will report its half-year result this Friday. If ANZ and NAB announce cracker bottom line profits (regardless of comparison to analyst forecasts) then the public backlash over any accompanying or subsequent mortgage rate increases will be severe. 

For further global economic release dates and local company events please refer to the FNArena Calendar.

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