After last week’s events, we all are wanting a quiet few days, but unfortunately, that won’t be on the cards because today is the day when the early reports on the health of manufacturing in some of the world’s major economies, starting with China begin.
Markets will continue reacting to the Fed’s surprise not to reveal a timetable to cutting its huge spending on bonds and mortgage securities, but other factors will also influence activity, led by the surveys of manufacturing activity.
HSBC and Markit release their ‘flash‘ report on Chinese manufacturing later today and it is expected to again show a small improvement from the 50.1 reading for August which was up on the 11 month low of 47.7 in July.
Any improvement will boost the value of the Aussie dollar which slid back under 94 USc on Saturday morning, our time.
In Australia, the RBA’s second financial stability review of the year is out Wednesday and is expected to contain more remarks about the rebound in housing – both existing and new home construction.
The main points from the report will be that Australia’s financial system remains sound with banks seeing improvement in asset performance and funding, business balance sheets in good shape and households exercising prudence.
But the central bank will repeat its comments of last week In the minutes of the September board meeting that the banks need to maintain "prudent lending standards" and that it is also keeping an eye on the increase in property gearing in self-managed super funds, and on the boom in NZ house prices where the big four Australian banks are heavily exposed.
The Australian Bureau of Statistics release its latest job vacancy figures midweek which are again expected to be weak. The Bureau also releases the financial accounts data for the June quarter and population estimates for the March quarter.
On the corporate front we have Kathmandu full year results tomorrow, the ASX AGM, David Jones and Nufarm full year results on Wednesday and Gindalbie Metals full year results on Thursday. Funtastic releases its figures on Friday.
Overseas, the manufacturing surveys are likely to reveal mixed results — improvement in the US and euro-zone, but a slowing of activity in the US.
America is also likely to see the focus shift to the looming budget and debt crises as well as second quarter GDP.
A new budget is required by October 1 (the US budget year ends on September 30) and hardline conservative Republicans are trying to hold a spending bill hostage while they try to neuter President Obama’s healthcare system, which is due to start in 2014.
Then there’s the debt ceiling brawl that will come to a head later in the month.
With the US budget deficit having fallen to 4% of GDP (from a 2010 peak of above 10%) and looking to go lower in 2014, conservative Republicans are in danger of locking themselves into a corner if they try to push too hard.
They could stumble and shut down the US government, or push the US to default on its bonds, a move that would trigger a crisis.
With mid term elections due in November 2014, such a move would almost cost the Republican Party dearly, as did a similar attempt back in the 1990s under President Clinton.
The fallout from one or both moves would spread beyond the US and probably send the value of the Aussie dollar higher as nervous investors deserted the greenback.
Elsewhere in the US, the health of the US housing sector will be tested with data on house prices (tomorrow night), new home sales (Wednesday night) and pending home sales (Thursday night). There are signs the recent rise in mortgage interest rates is curbing the rebound in housing.
As well, durable goods orders (out Wednesday night, our time) are also likely to see a bounce after a fall in July.
Friday sees the release of the third estimate for second quarter GDP. Economists see it remaining round the 2.5% estimate in late August which was up sharply from the 1.7% first estimate.
In Europe, the outcome of the German federal election will be the dominant factor as investors wait and see just how the line up of the parties settles after Sunday’s polls.
Chancellor Angela Merkel has been re-elected, along with her CDU group (which is right of centre).
Media reports suggest she is within sight of governing in her own right without a coalition partner, as she did in her first two terms.
If that doesn’t happen, the most likely outcome is a coalition between her party and the left of centre SPD, which would repeat the line up of her first government.
As well, the Eurozone PMIs for September will be out from tonight and with the German IFO index (tomorrow night) are expected to show a further improvement in the zone’s economy. Confidence surveys will also be released Friday and will likely show further gains in line with the gathering recovery across the zone.
The July PMIs for Europe showed the region enjoying the strongest expansion for over two years. Italy and Spain joined Germany in growth territory, while the rate of contraction in France has recently eased sharply.
There will also be an update on second quarter economic growth in the UK which currently stands at 0.7% (and is the current Bank of England forecast for the current third quarter), as well as current account data.
In Asia we will see inflation data for Japan released late in the week. It is expected to show another small rise as the economy shakes off the deflationary trap it fell into a couple of years ago. Japanese consumer price inflation hit a five year high in July, thanks mostly to the impact of the weaker yen on import prices (especially for energy products).
We have still yet to see much evidence of a breaking of deflation in the prices of locally produced consumption goods.
Economists say there is little evidence of a rise in domestic demand, with the improvement in growth coming from exports and higher business investment.
