Weekly Reports | Aug 19 2011
By Greg Peel
Not a good way to end the week, but it does go to serve as a warning that fear and loathing are never purged from a market as quickly one short sharp rebound might suggest. It could mean we are yet to go to new lows before a bottom is found, so all we can do is concentrate on the fact there is very little retail money in this market, there is very little leverage in the market this time around, companies in the US and Australia have much more solid balance sheets this time around (in particular Australian banks) and many are sitting on piles of excess cash.
That's not going to assuage concern over European banks, however, which are all holding the new “toxic” debt of Club Med sovereigns. While the ECB is welcoming all comers with emergency loan hand-outs, there's a very real risk European banks will need to raise more capital and it's not a good time to do it when your stock price is falling 10% every other day. European leaders are yet to learn how to soothe market fears, and aren't about to learn anytime soon. They will only react decisively at the point where it appears all hope is lost.
There are no US economic releases of note tonight, which might be a godsend. But we are heading into a week which will culminate on the Friday with the first revision of US June quarter GDP. We recall that the first estimate of 1.3% fell short of the 1.6% consensus forecast, but the greater impact was felt from the downward revision of the March quarter GDP to 0.4% from 1.9%. Expectations for this first June revision are understandably all over the shop, and why wouldn't they be? Current uncertainty aside, US GDP numbers are estimated once, revised again a month later, and again another month later, and then re-revised another three month later with potentially, as we have seen, wildly diverse outcomes.
Roll the dice.
Ahead of the GDP revision the US will see the Chicago Fed national activity index, the Richmond Fed manufacturing index, the FHFA house price index, and durable goods. On Tuesday to Thursday the Treasury will auction two, five and seven-year notes into a market which is already long to the gills and knows that a two-year note is now no different to cash (zero yield) given the Fed's announcement of a fix.
The UK will also make a first revision of its GDP next Friday, and ahead of that the eurozone will learn the results of the two important ZEW and IFO surveys on economic activity.
It's a very quiet week economically in Australia, because it is the biggest week of the year on the earnings result calendar. There are far too many companies reporting next week to list here.
Economically, investors will see the June quarter result for construction work done which, like this week's quarterly wage cost index, is another step towards next month's release of the Australian June quarter GDP which is due on Wednesday September 7 after the RBA meeting the day before.
Aside from the US GDP revision, next Friday in the US will have Wall Street and the world on a knife edge given Ben Bernanke will make a speech at the annual Fed knees-up at Jackson Hole, where last year he announced QE2.
Cue Punxsutawney Phil?
For a more comprehensive preview of next week's events, please refer to "The Monday Report", published each Monday morning. For all economic data release dates, ex-div dates and times and other relevant information, please refer to the FNArena Calendar.
