FYI | Jul 22 2007
By Greg Peel
It will probably be a weak start to the stock market this week (see “Wall Street Retreats On A Squashed Caterpillar”; FYI; today). However, the most anticipated piece of data this week in Australia will be Wednesday’s release of the second quarter consumer price index.
Last week the New Zealand equivalent CPI came in at 1.0%, ahead of expectations of 0.8%. Higher petrol prices were blamed for the jump, and that will provide a theme for this side of the Tasman’s result as well. Australian economists are expecting a 1.0% rise.
It was a bad quarter for petrol prices in Australia, as the refined product ran ahead of the crude product, picking up momentum from an otherwise low-priced previous quarter. Adding to potential for an above-expectation headline rate are food prices, which have been pushing ever higher as a result of drought, flood, and high global grain prices. The RBA, however, prefers to concentrate on the core CPI result, which may actually be somewhat less. Last week’s fall in import prices showed just what effect a surging Aussie dollar is having, and given our propensity for electronic goods, for example, the core rate may not be all that scary.
It comes down to how long you think higher petrol and food prices might last.
An early indication will come on Monday in the form of the purchasing price index, for which economists are expecting a 0.8% rise. The RBA likes to keep a handle on the PPI as well, and it is possible higher fuel and construction costs might also cause an upside surprise. How it all unfolds will then provide some guidance on the timing of the next interest rate rise (for there remain few in Australia not anticipating a move up some time soon). August is still considered an outside chance, although the inflation numbers would have to be pretty bad for this to be the case.
It will be an agonising decision for the RBNZ to make on Thursday. New Zealand rates are already sitting at 8.00%, and as such have sent the Kiwi dollar skyward as the world looks to the Shaky Isles as a safe haven of carry trade profitability. The RBNZ has already tried dumping Kiwi dollars into the market in order to curb the currency’s rise. This might have worked in days gone by, but it seems quite a King Canute measure in the current environment. While NZ inflation is not at a runaway point, the CPI did surprise. Another interest rate hike, to a massive 8.25%, will only attract ever more yen. The futures market has factored in a 68% chance.
Across the Pacific, the US learns the July Richmond Fed manufacturing index on Tuesday and will not be looking forward to June existing home sales on Wednesday. The Fed also opens its Beige Book on Wednesday. Further grief may come on Thursday with June new home sales, as well as durable goods. Friday brings the second quarter GDP, the second quarter personal consumption measure and the Michigan U confidence index for July.
Elsewhere we have the Japanese balance of trade result on Wednesday and June CPI on Friday.
At the Australian stock level the resource sector June quarter production reports will continue to flood in, with BHP Billiton (BHP), Newcrest (NCM), Oil Search (OSH), Perilya (PEM) Macarthur Coal (MCC), Lihir (LGL), Santos (STO), and Zinifex (ZFX) all reporting this week (see calendar for details). Lend Lease (LLC) is expecting to hear the Elephant & Castle tender decision on Tuesday and GUD Holdings (GUD) will provide its interim result on Thursday.
In the US, the second quarter reporting season moves into its second big week, with only about a quarter of the market having reported so far. Stand by for some volatility.
