Two sets of minutes, a smattering of stats, some important quarterly figures in the US and a green paper on climate change: that’s the week ahead.
In the US the minutes from the Fed’s June meeting are likely to support the view that interest rates are on hold for now in the US with the upside risks to inflation balancing out the downside risks to growth.
And Friday’s dramatic day in the US with the IndyMac Bank being seized by US regulators, shutdown and a new one set up to open tonight, our time, will mean there won’t be a rate rise in the US in the foreseeable future, no matter what inflation does.
Inflation figures for June are out this week in the US but they remain of interest to bears and others who can’t see that the US housing crisis and everything that flowed from it, especially the credit crunch, are the major dangers to the US and world economies.
Forget all the talk of China and Australia decoupling: as we have seen the scares over the credit crunch here have been far more damaging than anything else since last August and have effectively boosted interest rates more than 50% above the 1% from the Reserve Bank.
The AMP’s Dr Shane Oliver said in Friday: "We remain of the view though that the next move in US interest rates is more likely to be a rate cut as growth is set to weaken further as the tax rebate impact fades and as this feeds through to lower inflation."
US data for consumer prices are likely to show a further rise in headline inflation but core inflation is likely to remain benign (if the Fed’s latest reading, 10 days ago, is any guide). US data for retail sales, industrial production, housing starts and a couple of business surveys will also be released.
June US retail sales data is likely to have been boosted by the tax rebates but this is unlikely to last.
In fact the figures will not give a truly accurate state of consumer demand because of the artificial boost from the rebate. Figures out on Friday showed that around $US92 billion of the rebate has been pushed into taxpayer’s hands: around $US120 billion in all will be paid to individuals by the end of August.
The Bank of Japan and the Bank of Canada are both likely to leave interest rates on hold following their monthly meetings this week, just as the Bank of England did last week.
The results from troubled bank, Citigroup will dominate the reporting season in the coming week, along with Google’s figures.
US analysts are expecting a 12% fall in profits over the year to the June quarter with bank asset write downs and weakness amongst consumer discretionary companies remaining the main drag. The solid results for energy companies will disguise the underlying weakness in the US.
But the stability of Fannie Mae and Freddie Mac, the US government-sponsored home finance companies will dominate investor thinking and the markets. The seizing of IndyMac will raise concerns about other troubled US mortgages groups, of which are a few.
Barring any move over the weekend or early next week that quashes fears of capital constraints at Fannie and Freddie, the feeling on Wall Street is that US could fall further. The concerns about the two mortgage groups and the host of financial groups that deal with them (Lehman Brothers, Countrywide, Goldman Sachs, the list is long) won’t fade easily.
It could take a much more definitive statement from the US Government to change investor sentiment. There were reports in the London Times of a $US15 billion injection into both by the Government in coming days. That was reported to be one a list of options being considered.
Wall Street will be watching Federal Reserve Chairman Ben Bernanke when he appears twice on Capitol Hill to give his semiannual testimony on monetary policy. He will testify on Tuesday night, our time before the Senate Banking Committee, and on Wednesday, before the House Financial Services Committee.
Besides Bernanke’s testimony, two other Fed officials are due to speak in public this week: Janet Yellen, the president of the Federal Reserve Bank of San Francisco, is scheduled to speak on the housing market on Tuesday in and Thomas Hoenig, the president of the Federal Reserve Bank of Kansas City, will speak Wednesday. Both are likely to support Bernanke on Capitol Hill.
The US Producer Price Index for June is scheduled for release Tuesday night, our time, followed by the June CPI on Wednesday, when the Federal Reserve also will release the minutes from its most recent policy-making meeting on June 24-25.
In China some important economic figures for June is expected to show a fall in inflation to 7.1% and a further slowdown in economic activity.
Last week’s trade figures showed a slowing in the growth in exports and a sharp rise in imports as the value of the currency has risen 21% over the past three years.
In Australia, tomorrow see the minutes from the RBA’s July 1 board meeting released and will confirm that the RBA is becoming more confident that the slowdown in demand it has been trying to engineer is on track and as a result interest rates are likely to remain on hold.
A speech Wednesday by RBA Governor Glenn Stevens will also be watched closely for clues on interest rates.
It should confirm that rates remain on hold. It will be interesting to hear what he thinks about the recent weakness in most monthly economic indicators, including consumer and business confidence, job ads and housing finance and the strong June jobs figures.
We will also get the green paper from the Federal Government on Wednesday on climate change, greenhouse gas emissions and emissions trading.
The major local stats this week will be lending finance for May, import figures for June; int
