Australian inflation news and interest rate speculation will dominate markets here this week, along with corporate earnings and other reports here and in the US.
Offshore, the results of yesterday’s Japanese upper house elections are likely to see more activity on the Tokyo market, while the early report of the HSBC/Markit monthly survey of Chinese manufacturing will again remind us that the country is a major influence on investor sentiment.
In Australia, the June quarter inflation data to be released Wednesday are expected to show that inflation remains low, although there might be the odd sign of some pressures emerging from rising fuel costs, thanks to the weakening Aussie dollar. Higher food prices are also likely thanks to the wet weather on the East Coast in June.
Economists think the CPI will be up by around 0.45 – 0.5% in the month for an average annual rate of 2.3%-2.5% – barely changed from March.
Economists also see the underlying rate (measured by the Reserve Bank’s preferred measures) will also be up 0.5%, a bit stronger than in March with the annual rate rising to 2.3%.
CPI data around these levels will naturally see another round of ‘rate cut looms’ speculation – don’t believe it until it happens.
The RBA seems happy to sit and wait because it sees the "substantial monetary stimulus" starting to work on boosting home lending and construction.
AUDUSD YTD – Inflation figures to influence the week
In the corporate areas, production reports will be released from from mining companies including Fortescue Metals, Newcrest Mining and Oil Search.
The Fortescue figures will be analysed to see if it has enjoyed the same better than expected demand for iron ore than we saw in reports last week from Rio Tinto and BHP Billiton.
Full year earnings this year will include Australian Foundation investment Co and Australand.
On Thursday, Macquarie Group holds its AGM in Melbourne.
In Asia, Japan’s upper house result seems very likely to result in a pick-up in the pace of economic reforms from the governing LDP.
It will all but control the upper house in weekend elections.
Japanese inflation data due Friday are expected to show a further moderation in deflation, which is what the huge spending plans from the Government and the Bank of Japan are trying to achieve.
In fact it wouldn’t surprise to see some signs of inflation at the core consumer level.
China’s HSBC flash PMI will also be released Wednesday and is likely to have remained soft with a reading of under 50 (the dividing line between expansion and contraction (below).
That will likely see more fruitless speculation about the health of the Chinese economy from western analysts.
In the US, the corporate earnings season and the health of the US housing sector will dominate.
We can expect the housing recovery to be confirmed by a continuing rising trend in existing and new home sales (due Monday and Wednesday respectively) and in house prices (Tuesday).
But don’t be surprised to see the odd sign of weakness in some of the data after the sharp slowdown in new home starts and approvals in the past two months, thanks to higher mortgage rates.
The Markit early report on US manufacturing conditions PMI for June (Wednesday) is expected to have remained around 52 and durable goods orders (Thursday) are expected to show further gains in underlying terms.
And, US second quarter earnings will again be dominated by figures from major companies, led by Apple on Wednesday morning, our time.
Eight Dow companies and will also be among the companies that will report in the second full week of the US’s second quarter earnings reporting season.
They include Dow members AT&T, McDonald’s, plus Boeing Co, Ford Motor Co, Visa and United Parcel Service (UPS) which is seen as a proxy for business activity across the economy.
UPS recently cut its outlook, citing a weak economy and overcapacity in the global air freight market (as did its smaller rival, Fed Ex).
All up, around 157 companies in the S&P 500 index will release results this week.
In the Eurozone, the focus will be on preliminary business conditions PMIs (Wednesday) which are expected to continue the rising trend evident in recent months.
The German IFO business conditions index will be released Thursday and will tell us if Europe’s biggest economy is starting to grow again, as some other data has suggested.
