The Week Ahead: October’s Almost Over

This story features WESTPAC BANKING CORPORATION, and other companies. For more info SHARE ANALYSIS: WBC

By Andrew Nelson

What has October given the stock markets of the world? The crashes in 1929 and 1987, the big slide of 1997, the Friday the 13th in October 1989 and two back-to-back beltings in 1978 and 1979. Sure, there’s that, but there’s also a lot of market bottoms. If October is the month of scares and crashes, it is also the month when recoveries begin. Cross your fingers.

Friday’s Halloween. Trick or treat? Another question on most investors’ mind will be: 75 basis points or another 100 basis points cut when the Fed announces its interest rate decision on Wednesday.

Prior to the FOMC announcement, another question is soon to be answered: Can Wall Street’s vain yet valiant effort on Friday to shrug off falls from Australia, through Asia and carnage on European markets, set a tempering tone for Australia at the opening of a new week?

One thing’s for sure, by the end of the week we’ll be able to get a clearer picture as to how the recent tightening in global credit markets has not only affected Australian banks, with both St George ((SGB)) and Westpac ((WBC)) releasing their full year results, while the RBA will tell the tale for households and businesses, with private sector credit figures for September, which are forecast to be weak, due out on Friday.

But no matter how much we’d like our market’s performance to be due to things that transpire within our market, there’s no escaping the link between domestic and international volatility. That’s why all eyes will stay focused on the US, where the Federal Open Market Comittee meets on Wednesday, followed by the Fed issuing its verdict on the economic outlook of the world’s largest economy and the US government releasing its advance report on third-quarter real gross domestic product (GDP). The latter will happen on Friday, Australian time.

It’s not just decision and numbers from the US that will likely have a flow on effect on the Australian market. The week ahead is crammed with events and releases that could swing things around. There will be economic indicators including new home sales, consumer sentiment, a survey on home prices, plus durable goods orders and data on personal incomes and spending. And that’s just the economics stuff.

Reporting season in the US heats up and we’ll see countless numbers of companies unwillingly held up as sector benchmarks, with local stocks likely to be pushed and pulled on the outcomes of their North American counterparts. With the smell of blood in the water, a big run of bad news announcements may convince investors that their fears could come true and that the outlook for profits and economic growth is definitely becoming grimmer.

One thing’s for sure, with investors  combing through the data and corporate earnings, both foreign and domestic, to get a sense of how deep a recession we’re all looking at, if stocks continue to fall and consumers keep pulling their purse strings even tighter, the picture isn’t going to get prettier any time soon.

Monday sees seven local stocks trade without rights, Transurban ((TCL)) and Bendigo Bank ((BEN)) host their AGMs and Gloucester Coal ((GCL)) puts out its September quarter production report.

On Tuesday we’re looking at new home sales data from the US, retail sales and vehicle production figures from Japan and results from the NAB business Confidence survey. Austar ((AUN)) and Lihir ((LGL)) put out quarterly numbers and there are at least seven AGMs including Billabong ((BBG)), Perpetual ((PPT)), Suncorp-Metway ((SUN)) and WorleyParsons ((WOR)). 

Wednesday sees US consumer confidence, the Case Schiller 20 City Index and comments from the Philly Fed all coming out of the US the night before. US consumer confidence and sentiment (due out Thursday US time) will likely paint the picture long before GDP numbers are out that the US economy is sliding into recession. That means after recording three consecutive monthly gains through Q3, confidence is expected to plunge back towards its early 90s lows.

In our region, Japan puts out IP numbers and New Zealand announces its trade balance. Locally, we’ve got skilled vacancies on the economics front, while St George ((SGB)) announces its full year results, as does Brickworks ((BKW)).

There are also quarterly production numbers from a Macarthur Coal ((MCC)) and Whitehaven ((WHC)), while Foster’s ((FGL)) and Origin ((ORG)) are among the seven companies to host their AGMs.

Thursday starts with the much anticipated outcome from the US Fed’s rate meeting (Wednesday US time). The FOMC is widely expected to cut the Fed funds rate, but with such a dovish Beige Book read last week, a 50 basis point cut might all that is likely to eventuate. Imagine, we are living in times where a half a percentage point rate cut to 1% percent can be described as “only”. There is also US durable goods plus UK mortgage approvals and consumer credit.

New Zealand has a busy day planned, with building permits, trade figures and business confidence data. NZ business confidence returned to positive territory in September for the first time in over six years, although economists aren’t expecting any nice surprises this month.  In Australia, we’ve got the NAB small business survey to look at.

On the company front, Westpac ((WBC)) puts out its full year result to bring the bank reporting season to an end, while Australian Pharmaceuticals ((API)) also puts out full year numbers.  Toll Holdings ((TOL)) and Newcrest ((NCM)) are two of six companies with AGMs scheduled, while Centennial ((CEY)) issues quarterly production numbers.

Friday begins with US GDP, personal income and jobless data, while Europe provides us with business climate, consumer confidence and economic confidence reads. In the Australasian region, we’re looking at Japan CPI, jobless rates, housing starts and the rate decision from the BoJ.

Many are predicting at this point that the advanced estimate for Q3 GDP will confirm the US economy contracted in the quarter, following the strong fiscal-stimulus inflated Q2 result. Slumping auto sales and very weak core retailing point to the first quarterly decline in consumer spending since the early 1990s. Give me an “R”, give me an “E” etc…

On the domestic front there are RBA credit aggregates and HIA new home sales. Westpac expects private credit growth will have slowed significantly to a weak pace, while housing credit is also likely to have slowed further. On the company side, a handful of stocks move ex div, there are a few more AGMs to contend with and a couple of mid-range producers put out September quarter production numbers.

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