The Week Ahead: Which Way Do We Go?

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By Andrew Nelson

US stocks booked a modest recovery on Friday, but the global economic picture remains bleak, with metals taking a further turn for the worse in London and oil continuing to track back.  There is little in company news expected, so economic indicators will take the front seat in the week ahead.   

In weekend news from the US, the federal government put Fannie Mae and Freddie Mac  in a conservatorship that allows their stock to keep trading but puts common shareholders last in any claims. Both CEOs got the boot, while the US Treasury will immediately take a $1bn equity stake in each company .

This is a better outcome for shareholders than many had expected, with the move likely to instil some confidence in the finance sector and help boost shaky credit markets. FNArena will follow up on this shortly.

Today sees RBA Governor Stevens deliver his Half-Yearly Testimony before the House of Representatives Standing Committee on Economics in Melbourne, with the market looking for some guidance on the next potential reduction in rates.

Some financial experts believe that last week’s national accounts readings make it less likely that we will see another cut in the very near term and Westpac points out that the interest rate sensitive parts of the economy are beginning to slow, while the capex numbers were strong, indicating corporate sentiment remains healthy.

These facts, the bank thinks, could see the RBA raise its economic growth forecast, which could even happen when Stevens speaks later today. But that’s where Westpac economists begin to differ from the emerging sentiment, saying that despite the surge in investment and business expectations, it is being driven by mining investment, which ultimately adds little to domestic demand pressures and has little effect on inflation.

So, even if growth forecasts are raised due to stronger business investment, it will have little effect on the short term direction of interest rates, the bank reasons.

In equities, one of the main themes today will be an avalanche of ex-dividends, which could heap a pile of downward price pressure on the market at the beginning of the week. Companies to keep your eyes on  include Lend Lease ((LLC)), OneSteel ((OST)), Sonic Healthcare ((SHL)) and WorleyParsons ((WOR)) paying 34c, 13.5c, 32c and 47.5c respectively.

Tuesday has us looking at UK PPI and US consumer credit at the market’s open.

Locally, we have housing finance figures for July, and after recent decline, both ANZ and Westpac expect the figures to have stabilised, with investors shrugging off independent rate rises from the banks in July instead to focus on the increasing likelihood of an official rate cut in September. Although, both banks reckon that if we get another cut in the short term, it could be enough to turn around the weak sentiment that has pervaded the property market.

The day also sees Retail Trade figures for August, although all and sundry are complaining about budget cuts at the ABS, which has seen the size of the sample that generates the data slashed. As such, the current and future reads are expected to be far less useful, although CBA, ANZ and Westpac are all expecting a slightly positive read, with the $7bn in income tax cuts introduced on July 1 providing a boost to overall consumer spending.

On Wednesday we begin the day with US housing data followed up by Australian September consumer confidence, just in time for full year results from Just Group ((JST)); this will mark a pretty useless exercise as the company is about to delist thanks to Solomon Lew’s Premier Investments. The same day also sees a 32c dividend from West Australian News ((WAN)).

Thursday will bring us UK trade and labour data, followed by NZ rates, with a trickle of Aussies ex-dividends mixed in.

The data also see August Labour Force Data, with the labour market expected to have remained relatively strong, as businesses have arguably only just started laying off staff. Most in the market expect a double bladed result, with August figures expected to show a small rise in employment, but also a rise in the unemployment rate.

Friday looks pretty quiet from here, with nothing on the calendar from companies and only US trade numbers and EU ECB comments from the night before.

That’s all for now, go to the FNArena calendar for more.

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