The Week Ahead: Hello November

This story features CSR LIMITED, and other companies. For more info SHARE ANALYSIS: CSR

By Andrew Nelson

October was the worst month the Australian share market has seen since 1997. I guess it’s not that surprising that its known as the jinx month given the crashes in 1929 and 1987, the double beltings of 1978 and 1979 and the aforementioned slide of 1997. And now we can add 2008 to that illustrious list. Yet while it was a month to be best forgotten, let’s not lose sight of the fact that last week ended with three consecutive up days on the local exchange and one of the best weeks Wall Street has ever seen.

Finally, the laundry list of efforts undertaken by central banks and governments the wide world over are finally starting to stick. Credit strains are easing and this relief finally began to bear fruit, seeing volatility decline, just a little. Bargain hunting and funds buying stocks to rebalance their portfolios also helped boost markets.

The first week of November has two big dates on the calendar, on Tuesday the Reserve Bank of Australia takes another look at Australian interest rates and on Wednesday night through Thursday Sydney time America heads to the polls to pick its new President. Both will probably have a significant effect on markets and neither for the reason that it should.

In the US the market wants a Republican president, it always wants a Republican president, but this probably has much more to do with the people that work in and benefit most from the market rather than based on the market’s actual performance under either a Democrat or Republican commander in chief. In fact, data suggest that the political party of the President has not been a statistically significant or consistent driver of stock market performance in the last 150 years.

The real issues will be the likelihood of quick fiscal stimulus after the election (who’ll give us what) versus the possibility of further protectionist measures or more regulation (who’ll do what to us).

US reporting season will also take up a bit of local attention, with almost 60% the market having already reported. Reuters is predicting earnings in the third quarter for companies listed on the S&P 500 are expected to have fallen 23.8% for the quarter. But with market looking more stable and credit conditions loosening, the market will have at least a little help to look past weak economic and earnings data.

In Australian, it’s almost a given that we’ll see another rate cut, probably another half a percentage. Why? Because the market wants it. You could argue all day long whether 75 bps, or 25 bps is needed, whether another full percent is warranted, or if any cut is needed at all. But regardless of what is needed, we’re gonna’ get our cut and because 25 bps isn’t enough to calm the jumpy and because 75 bps would convince the jumpy that the RBA knows something we don’t, we’re probably going to get 50 bps. It aint science, or economics, but as we’ve seen over the last few month, the market doesn’t need an economist, it needs a psychiatrist.

Since last month’s surprise 1% cut there have been co-ordinated 50bp cuts by the US Federal Reserve, European Central Bank, Bank of Canada, Swiss National Bank and Sveriges Riksbank. (The Chinese have been cutting too). Since then, several of those banks have cut again. On Friday, the Bank of Japan joined in on the action and cut the nation’s already low 0.50% interest rates by 20 bps. Look out the rest of Asia, after raising rates as late as August, countries like Thailand, Indonesia, the Philippines and South Korea may also be shifting into reverse real soon.

The coming week will also give us Australian retail sales and while it’s a lagging indicator for the month of September, it will get some pretty close attention, as will the country’s latest batch of unemployment data, due out on Wednesday. Economists have been predicting for some time that the jobless rate must rise to fulfil the prophecy of looming recession some are predicting.

Monday’s Australian retail sales data are expected to show a modest decline in the trend figure for September, while the country’s level of inflation for October, as measured by TD Securities, will also be released. There will also be Australian house prices, job ads, AI group PMA.
New Zealand has a busy week on the cards, with Monday’s jobs and wage cost data followed up by unemployment data to be released Wednesday.

Tuesday brings us US manufacturing, construction spend and vehicle sales from the night before, while more locally we’ve got Japan labour earnings and motor vehicle sales. The reports on US manufacturing will be followed up by non-manufacturing, or service-sector, activity on Wednesday, with both expected to produce readings showing that the economy continued to shrink in October.

The moment everyone in Australia will be waiting for is the rate decision from the RBA, which is quickly followed by the Melbourne Cup for your entertainment pleasure. Giddy up! A 50bp cut is expected by most, bringing the easing since September to a whopping 175 basis points in three short months as the RBA seeks to cushion the economy from a global downturn.

Wednesday gets us started with European PPI, UK PMI and US factory orders. In local news, Australian trade balance and building approvals will likely be the highlights of a day of lower-tier macroeconomic releases. Building approvals for September are expected by some economists to show 1.0% monthly and 14.3% yearly decreases. On the corporate front, West Australian News ((WAN)) and Babcock & Brown Infrastructure host their AGMs, while sugar and building materials conglomerate CSR ((CSR)) releases its full year figures.

Thursday kicks off with European PMI and retail sales, UK IP (that’s industrial production) and from the US there’s Challenger job cuts, ADP employment numbers and the ISM non-manufacturing read for October. In the region, the BoJ puts out its policy board minutes, surely an interesting release after the 20bp cut by the BOJ on Friday (though we already know there was no consensus at the last meeting). New Zealand publishes 3Q employments stats and in Australia we’ve got labour force data and overseas arrival numbers to ponder.

Companywise, there are four AGMs, including Leighton ((LEI)), while News Corp ((NWS)) puts out its 1Q09 results.

On Friday we’ll know what the Bank of England and the European Central Bank have decided about interest rates, as well a look at US labour costs. At home there’s Australian foreign reserves data for the month October will be released to bring a relatively quiet end to the week and oh yeah, who can forget the New Zealand general election.

Friday also sees Ansell ((ANN)) and three other companies host AGMs, while both Bank of Queensland ((BOQ)) and National Australia Bank ((NAB)) pay their dividends.

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