American interest rates will be top of the list for markets and investors this week, or rather the future direction of rates, with a couple of key bits of data and a speech by Fed chair Janet Yellen to set the scene for what could be the second increase of this cycle from America’s central bank.
But in Australia we start the run-up to next week’s first quarter GDP figures and the Reserve Bank meeting a fortnight away tomorrow.
This week sees the release of March quarter construction data on Wednesday and private sector capex data on Thursday. Both are likely to show continued softness in business investment led by mining.
Capex intentions for the forthcoming 2016-17 financial year will be watched closely for any signs of improvement in non-mining investment.
RBA Governor Glenn Steven’s makes some “remarks” that will also be watched for any clues regarding the interest rate outlook. He appears at a lunch in Sydney tomorrow.
The March 30 reporting season continues with a couple of companies reporting – Aristocrat Leisure will flesh out its strong trading update issued 10 days ago and Programmed Maintenance Services will try to convince investors that its 2015 takeover of labour hire group Skilled hasn’t been a waste of money.
Trade and budget data for New Zealand will also be issued this week.
In the US, all the focus will be a speech by Fed Chair Janet Yellen on Friday night our time.
After last week’s switch of tactics by the Fed to start softening up markets for a rate rise either in June, July or September, investors will be looking for more guidance from the Fed chair on rates, the economy and inflation (which seems to be the big concern, despite the inflation rate remaining under the target level of 2%).
Last week’s Fed minutes of the May meeting indicated that a rate hike is possible next month, as did comments from some senior Fed officials, including the highly influential New York Fed head Bill Dudley.
Yellen is likely to be a bit more cautious, but she can’t go against the comments from the other Fed officials of last week without triggering a sell-off by investors again confused by contradictory Fed messaging.
The list of Fed officials also speaking this week includes James Bullard president of the St. Louis Fed and Fed governor Jerome Powell, both members of the rate-setting Federal Open Market Committee. So the message will again be delivered in such a away that markets will not be able to ignore the guidance.
Markets though will get some help from a couple of key bits of data to be released before Friday’s speech from the Fed head.
Tonight, our time, the ‘flash’ updates to the monthly surveys of US business conditions will be released. The AMP’s Chief Economist Dr Shane Oliver says we should expect no real change from previous readings showing modest expansion in the sector.
New home sales data will be issued tomorrow night, our time, house prices on Wednesday night, durable goods orders on Thursday night and the second reading of US first quarter GDP growth on Friday (before Ms Yellen is due to speak).
Dr Oliver sees the GDP estimate being revised to 0.8% annualised from the initially reported 0.5%.
The US third quarter reporting season is almost at an end. Companies releasing results this week are expected to include Hewlett Packard and its spin-off HP Inc.
Luxury products group Tiffany and Co also report, along with retailers Dollar General, Williams Sonoma and Dollar Tree (the latter were expected last week, but are now due this week). Valspar, the big US paint maker, is also down to report (it owns Wattyl Paints in Australia), while a handful of big Canadian banks will also release results including Toronto Dominion and Royal Bank of Canada.
The central bank of Canada releases its latest monetary policy decision midweek.
In the UK, retailer Marks and Spencer reports, as does newspaper group DMGT. Areva, the big French nuclear group, is also down to report, but we may hear more about the structure of a bailout by the French government.
In the Eurozone, the early May business conditions surveys including manufacturing will be released tonight, our time, and are likely to remain around levels associated with continued moderate economic growth.
Greece is top of the list of topics for a meeting of eurozone finance ministers on Tuesday night who will decide if the country qualifies for more bailout loans.
The updated first quarter GDP report for the UK will be issued midweek and is likely to see a further decline from the 0.4% in the previous estimate to around 0.2%.
In Japan the latest manufacturing conditions survey tomorrow will show continuing modest expansion, while Dr Oliver says the consumer price inflation data on Friday will show deepening deflation at a headline level and very low inflation on a core basis. Japan’s trade data for April will be out later today.
Leaders of the Group of 7 nations gather in Ise-Shima, Japan on Thursday to discuss the global economy, investment, trade, the refugee crisis, climate change and gender equality.
Nothing substantive will emerge from the meeting, but analysts should watch for an argument between the US and Japan on possible intervention to drive down the value of the yen.
