The US Federal Reserve holds the key to the health of financial markets this week – although the full year reports from three of our four big banks will have a major impact here in Australia late in the week.
As well, US third quarter earnings, plus profit reports from a growing number of European and Asian companies will be released.
As well, there’s the usual end of month data from Japan, Eurozone inflation and employment, as well as the first estimate of US third quarter economic growth.
In the US, the post meeting statement from this week’s two-day confab of the Fed’s Open Markets Committee is what markets around the world have been waiting on for months.
Investors are looking for something definitive on the timing of future US interest rate moves. The Fed’s meeting comes at a time when stock markets have been volatile as analysts try to gauge the underlying health of the US economy and the interest rate response from the Fed.
Falling oil prices (and those of many major commodities) haven’t made it any easier for the Fed, thanks to the surge in US oil production which is slowly delivering huge benefits to American business and consumers.
Senior Fed members have made it clear the central bank is alert to the potential damage that any premature tightening of monetary policy could cause in the US and around the world, especially at a time when the global economy is struggling. At the moment US rates appear set to remain on hold until mid-2015.
The meeting comes during a week in which the first estimate of third quarter GDP in the US looks set to show a continuation of the strong economic growth seen in the second quarter. Industrial production rose 0.8% in the three months to September.
Retail sales were also up 1.0% compared to the second quarter and forecasts and surveys point to annualised growth of just over 3% in the three months to September. This is the first estimate and the second and third estimates often see significant revisions.
The key again to the Fed’s decision is the wording of the post meeting statement and a decision on finally ending the bond buying program. Watch for the phrase “considerable length of time” and how it is used in relation to interest rates.
Any decision by the Fed to cut the size of the bond buying, but continue it to say, the end of the year could see a big rally on global markets.
The feeling is that barring a shock in the next three days, the Fed will end its buying program early Thursday morning, our time. There is no press conference after this Fed meeting, all we will have will be the usual statement.
On top of this, Markit’s so-called flash US Services PMI will meanwhile give the first glimpse of the performance of the world’s largest economy at the beginning of the final quarter of 2014.
We can expect reasonable growth in pending home sales (tonight, our time) and durable goods orders (Tuesday night) along with solid consumer confidence (also Tuesday night).
The Fed’s preferred inflation indicator (released Friday night, our time) is likely to remain around 1.5% year on year, leaving plenty of scope for the Fed to keep rates down.
Meanwhile, more than 100 US S&P 500 companies will report Q3 earnings in the coming week, including some oil, pharma, resources tech, financial and industrial giants.
These results and the comments managements make about the outlook, will tell us a lot about how the global economy is really going.
Already we have seen a number of weaker than expected results from European companies, and several companies abandon their 2015 estimates (such as German chemicals giant BASF).
In fact the US earnings will be dominated by big oil companies with quarterly results from Exxon Mobil, BP, Shell, Chevron, BG Group Hess Group, Imperial Oil, and Concoco Phillips. Chemicals giant Du Pont releases its quarterly figures as does Cummins (the engine group), and insurers Metlife, Aetna and Allstate.
As well results will be released by social media giant Facebook (which could boost the wider market) and its smaller rivals Twitter and Linkedin and Grupon (the buying group).
Drug giants Pfizer, Novartis, and Merck; payments giants Visa and Mastercard; the coffee colossus Starbucks; copper and gold miners Barrick Gold, Freeportmacmoran and Newmont release their quarterly figures, as does drug store giant McKesson Corp and whitegoods group Whirlpool. Big German bank Deutsche Bank is down to release its results, two days after the European Central Bank releases details of its latest bank stress tests.
Also reporting, Kraft Foods, retailer and fashion group Ralph Lauren, perfume group Revlon, contractor Fluor, Kellog Co and media groups New York Times, Thomson Reuters, Time Warner Cable and Charter Communications.
Foreign companies reporting this week include Honda, Air China, Alfa Laval, Chongqing Department Stores. Evergreen Marine, Jaingxi Copper, Baidu, Hankook Tire, Kansai Electric Power, LG Electronics, Petrochina, Siam Cement, Sherritt, Statoil, Chalco, Bayer, Bunge, Casio Computer, China Cosco, Daihatu, Denso, Lufthansa, Fuji Film, Fujitsu, Hokkaido Electric Power, Hyundai Heavy Industries, Kyocera, Kirin, Linde, Mitsubishi Electric, Mitsui OSK, Nec Corp, Nippon Steel, Orix Corp, Toshiba, Shiseido, Sumitomo Corp, Tokyo Gas, Vale (the giant Brazilian iron ore miner), Volkswagen, Wuhan Department Store, Tsingtao Brewery, Anheuser Busch Inbev, Bright Diary, Baoshan Iron and Steel, Japan Airlines, Mazda, Panasonic, Sanyo, Oki, Sharp, Sony, Tokyo Electric Power and Zoomlion.
In Asia, Japan’s industrial production for September (out Wednesday) will be watched for a rebound after August weakness and data for household spending, unemployment and inflation will be released Friday.
The Bank of Japan publishes a statement on monetary policy on Friday. And China’s official manufacturing conditions PMI for October (Saturday, November 1) will likely be little changed.
In Australia, the final results from the National Australia Bank and then the ANZ, plus the interim from Macquarie, will dominate sentiment on Thursday and Friday.
The NAB will report a lower profit, the ANZ a small rise and Macquarie a reasonable improvement, according to analyst forecasts and company updates.
We can also expect trade prices (Thursday) to show a further decline in the terms of trade, adding to the belief that the Aussie dollar should be lower.
As well, September quarter producer price inflation (Friday) is expected to remain benign and private credit growth (also Friday) is forecast to remain moderate.
The main focus in the lending data will be whether growth credit to investors in housing shows any signs of slowing given RBA and APRA concerns.
The annual meeting season is well underway with a host of ASX 200 companies reporting including Flight Centre, Bendigo Bank, Argo Investments, Stockland, Challenger, Woleyparsons, Domino’s Pizza, Federation Centres, UGL, IAG, Perpetual, JB Hi Fi, Tatts, Newcrest, Echo Entertainment, Hills Industries, Ausdrill and Steadfast Group.
The Reserve Bank of New Zealand announces its latest interest rate decision on Thursday – no change is expected.
In the Eurozone, the flash inflation figure for October on Friday night, our time, will have a great bearing on next week’s European Central Bank and the drift towards deflation across the continent.
Retail sales figures for Germany are also due to be released tomorrow night. An important survey of German consumer confidence will be issued tonight, our time.
September’s employment and unemployment data for the eurozone will also be out on Friday night, our time.
