FYI | Mar 02 2008
By Greg Peel
The Australian reporting season has come abruptly to a close, and after posting final profit reviews on Monday and perhaps Tuesday stock analysts will take a holiday, or a drink, or just sleep for a week. But they will tag with economists who have a very busy week of data analysis from across the globe. Manufacturing and services indices will be a feature in Australia, the US, Europe and the UK, and many central bank rate decisions will be made.
To Australia first.
Monday begins with fourth quarter company profits and inventories, as well as the CBA/AiG performance of manufacturing index and the TD Securities/Melbourne Institute inflation measure for February.
On Tuesday it’s the fourth quarter current account balance and January retail sales. Then the RBA will announce its rate decision, which is considered by all and sundry to be a lay-down misere for a 25bps hike to 7.25%. The Aussie dollar’s recent run was tripped up by the preliminary GDP estimate on Friday showing a slowing to 3.9% growth, but this is exactly what the RBA was expecting anyway, and inflation is the beast that must be tamed.
The RBA’s assistant governor Edey will tell us all about it on Wednesday, as the official fourth quarter GDP number is released. CBA/AiG also release their February performance of services index. On Thursday we learn the January trade balance and building approvals, while CBA/AiG release their performance of construction index on Friday.
The US kicks off with the ISM manufacturing index for February on Monday, along with January construction spending. Tuesday takes a break before a deluge on Wednesday, which includes the fourth quarter non-farm productivity and unit labour cost releases, factory orders for January, the ISM non-manufacturing index for February, the ADP employment numbers for February (which are always a re precursor for the government’s Friday release but rarely consistent with them), and the Fed’s Beige Book – an anecdotal assessment of the state of the economy.
Thursday sees January pending homes sales, before Friday brings February consumer credit and the February employment data, which have the power to heavily influence the markets. The weekly jobless claims average (jobless claims are released every Thursday) have been sneaking up, and any sharp increase in unemployment will seal the stagflation trifecta.
The Bank of Canada makes its rate decision on Tuesday. Canada cut by 25bps to 4% in January, and is expected to cut again by either 25 or 50bps. Canada’s is arguably the economy most immediately affected by a slowdown in the US.
The RBNZ makes its rate decision on Thursday. New Zealand is feeling the effects of a slowing economy and the same inflation pressure as everyone else. But the RBNZ will probably decide 8.25% is sufficiently restrictive for the time being.
Both the Bank of England and European Central Bank make their rate decisions on Thursday. The BoE cut in February by 25bps to 5.25% while the ECB has remained steadfast at 4% since raising by 25bps last June – just before the credit crunch hit. Both have a very tough decision to make in terms of slowing economies and rising inflation. The ECB’s decision will manifestly impact on the US dollar, which slid to new index lows last week. The European business community is crying out for a rate cut to stem the surge in the euro and save the EU export industry. The ECB is terrified of inflation, and could even raise the rate, but as this would send the US dollar lower and thus commodity prices higher it might be best to hold tight. No change could well be the answer. No one would envy Trichet at the moment.
The Bank of Japan makes its decision on Friday. Japanese economic data have not been too bad recently, but economists expect Japan to ultimately feel the effects of a slowing US. The carry trade has been unwinding without official assistance, so the BoJ will probably stay put on 0.5%.
But then, anything can happen, and probably will.