The Week Ahead: Inflation And Recession

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This story features ORICA LIMITED.
For more info SHARE ANALYSIS: ORI
The company is included in ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

As the US comes to terms with a bad week in the stock market last week, focus turns to economic data this week. A big shift down in October consumer confidence has set a nervous tone. The US will receive further indication as to whether a recession is looming, or indeed begun already. And various CPI numbers, including in the US, will provide a snapshot of global inflation. Hundred dollar oil? Surely there will be an effect.

It’s Veterans’ Day in the US on Monday which closes the bond market, but stock exchanges remain open. Markets might be quiet or worse – thin and volatile. Tuesday sees September pending home sales which is unlikely to lift the spirits, although September is a long way away now. Similarly, Wednesday brings September business inventories, but it also brings the October PPI and probably the most important number of the week – October retail sales. Last week saw retailers report their October same-store sales figures in the US, and 70% of results were down. If the American consumer is wavering going into Christmas, it could be ominous.

More economic health numbers are revealed on Thursday, with the October leading indicators, the Empire manufacturing index for November and the bellwether Philadelphia Fed report for November. If the US economy is sliding, investors will be fixated on the October CPI number which also comes out on Thursday. The last thing they need is stagflation – a receding economy with rising inflation. To date, US inflation has behaved itself, but with the US dollar falling import prices are soaring and gasoline prices are heading into record territory.

Friday brings industrial production and capacity utilisation for October, and the September TIC flows which will indicate just who has been selling the US dollar and how much.

A strong CPI result in the US would otherwise make the case for a rate rise, which would provide support for the ailing greenback, but as credit market concerns intensify once more, the market is still betting on a December rate cut, despite the Fed’s rhetoric to the contrary. Both Europe and the UK left rates unchanged last week, but indications as to whether balance can be maintained will be provided by the CPI numbers for the UK on Tuesday and the EU on Thursday. EU finance ministers meet in Brussels on Tuesday, and the US dollar is sure to be a hot topic. Ben Bernanke speaks in Washington on Wednesday, and ECB chairman Trichet speaks in Paris.

The booming Chinese stock market is beginning to cause concern for many, and China’s CPI is released on Tuesday (supposedly, although the Chinese are not always consistent). The hope will be for a pullback from September’s 6.5% figure given that was influenced by a one-off spike in pork prices.

Japan makes its monthly rate decision on Tuesday. There is no expectation of s rise from 0.5% at this point.

Having already had a Cup rate rise in Australia, this week’s data will serve more to confirm than influence. However, there are one or two economists suggesting the next rise could come as early as December. The RBA makes its policy statement on Monday, which may or may not provide some clues. On Tuesday the NAB business confidence survey for October is released.

Wednesday sees the Westpac-Melbourne Institute consumer confidence measure for November, and the important third quarter wage cost index. Any jump in this number increases the chances of another hike, as will the third quarter average weekly wage on Thursday along with November consumer inflation expectations.

On the stock market front Orica ((ORI)) reports its full year results on Monday while the Macquarie Group ((MQC)) (previously Macquarie Bank MBL) reports its interim on Tuesday. Incitec Pivot ((IPL)) pops the champagne over its final result on Wednesday, while the AGM-fest rolls on all week. For details, check the FNArena calendar.

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