Next Week At A Glance

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By Rudi Filapek-Vandyck

Whether it is related to mass-psychology, technical resistance levels or rather mixed signals from the US Q2 corporate season, as well as from the economic calendar, equities are finding the going tougher as January grinds to its end. On Monday, I used my first Weekly Insights of 2011 to point out there was increasing evidence equities were suffering from "rally exhaustion", if not plain "vertigo". I would advocate that price action since has shown just that.

Of course, viewed through a bullish prism, one can argue the market is merely taking a breather post some very steep gains since early December. This is true, but more often than not these "breathers" turn into something more sinister, especially if economic data and money flows turn into opposite direction. Whatever might be the case, crude oil and gold are definitely each going through their own "breather" and it would seem this is going to take longer than the bulls (virtually everyone in December and early January) would have thought possible.

If anything, crude oil futures (WTI) seem on their way to U$80/bbl instead of the widely anticipated US$100/bbl in the short term, while gold might have some more downside to digest as well.

An key point of market focus will be tonight's release of first Q4 GDP estimate in the US. Apparently, economist expectations vary between sub-3% and above 5% so that in itself should almost guarantee volatility and caution ahead of the release. The calendar also shows an update on US consumer confidence by the University of Michigan.

Next week will bring us more updates on the US labour market and Friday's January unemployment report is considered key for the markets' short term direction by some strategists. More reason to be a little more cautious? Well, recent labour market data have had a tendency to disappoint.

Prior to Friday's report next week we get an update on the US Purchasing Managers Index for January, still a widely followed and analysed economic indicator and one that has mostly pleasantly surprised in the second half last year. The PMI for January is scheduled for release on Tuesday, with the Chicago PMI scheduled for Monday. The rest of the world will equally publish updates on their PMIs on the day. On Tuesday we have construction spending for December. On Wednesday we expect the traditional warm-up to the Friday jobs report, when the ADP releases its own calculations of jobs created by the private sector.

On Thursday investors can look out for US chain store sales, factory orders and the services PMI for January.

Locally, mining and energy companies will continue releasing quarterly production updates with the likes of Avoca ((AVO)), ROC Oil ((ROC)) and Australian Worldwide ((AWE)) among the names on our calendar. Retailers Wesfarmers ((WES)), Myer ((MYR)) and Woolworths ((WOW)) will each provide their own trading updates while the likes of Navitas ((NVT)), News Corp ((NWS)) and Tabcorp ((TAH)) will release corporate results.

My prediction: the February results season is going to reveal an even wider gap between resources (and related) companies and the rest. The trend in earnings expectations for Australian listed companies has been positive for the first group since last year, but negative for the second group, which just happens to represent the largest group. The key question that will need to be answered in February is whether all the negatives have now been accounted for, or whether expectations are still too high. My suspicion is that many boards and CEOs will still be cautious, given subdued consumer spending, wet weather and a strong Aussie dollar.

And oh yes, both the RBA and the ECB will meet the coming week, but don't expect any major surprises.

Greg Peel will return on Monday.

For a more comprehensive preview of next week's events, please refer to "The Monday Report", published each Monday morning. For all economic data release dates, ex-div dates and times and other relevant information, please refer to the FNArena Calendar.

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