Markets here and offshore will be dominated this week by interest rate decisions from the Reserve Bank and the Federal Reserve, as well as the release of the US April jobs data on Friday night.
In fact it’s the start of the month when there’s a deluge of data here and around the world, as well as some significant decisions.
And a big retail merger in the UK worth over $22 billion dollars will be confirmed today.
The RBA will won’t change its wait and watch policy for the 20th month in a row (last week’s weakish March quarter CPI made that certain) and the Fed won’t move after lifting rates at its last meeting.
On top of that we will see the release of the start of month activity surveys of manufacturing and services – those for China and the EU will be watched closely for any further hints as to whether a recent slowing trend is continuing.
The EU releases its GDP figures for the March quarter on Wednesday and economists are expecting to see signs of a slowdown after a very sold 2017.
The UK economy saw growth slow to 0.1% in the first quarter in the first estimate released last week, while US growth slowed to 2.3% (annual) in the three months to March, down from 2.9% in the December quarter.
In Australia, the Reserve Bank won’t change interest rates when it meets tomorrow. That’d despite strong business confidence, improving non-mining investment, solid global growth and underlying inflation reaching 2%, the bottom of the central bank’s inflation target of 2% to 3% over time.
Risks around slack consumer spending, tightening bank lending standards, weak wages growth and inflation, the slowing Sydney and Melbourne property markets and the still too high $A argue against a rate hike.
The AMP’s Chief Economist, Dr Shane Oliver believes the RBA will sit and not move rates for more than a year, with a rate cut still an option if growth slows.
He says the central bank is expected to make only minor changes to its 2018 forecasts in its Statement of Monetary Policy (out on Friday)with a slight rise in its underlying inflation forecast to 2% and a downgrade in its growth forecast to 3%.
Meanwhile on the data front Dr Oliver says we can expect: credit growth (later today for March) to remain moderate; continuing weakness in home prices (tomorrow) led by Sydney; a 2% or so bounce in building approvals for March (on Thursday); and a March trade surplus of around $US1 billion (also Thursday).
As well we will have the usual start of the month manufacturing and service sector surveys for April. Car sales data for April will be released later in the week.
Three banks will dominate local financial reporting this week – ANZ tomorrow, NAB on Thursday and Macquarie on Friday (See separate story).
In the US the Fed’s meeting on Tuesday and Wednesday will end with the usual post meeting statement issued around 4am Sydney time.
Economists do not expect a rate rise at this meeting – June is the next option. But the statement will be closely examined to see if the Fed still believes the US economy and inflation require three or four rate rises this year.
Up to early last week the betting was two, possibly three more rate rises this year, but US bond yields slid on Thursday and Friday and the 10 year yield ended just over 2.96%, where it was four weeks ago, indicating that there may only be one, or two more rate increases this year.
The April monthly jobs report on Friday night, our time, though will be the highlight of the US economic releases this week.
Economists say US job growth picked up in April, with the economy creating 190,000 jobs, up from the weak 103,000 in March.
The unemployment rate is expected to slip to 4%, from 4.1% in March. The average hourly earnings component will be closely watched as the market watches for signs that inflation is heating up.
Average hourly earnings are expected to have cooled to 0.2% month-on-month, from 0.3% in March, while the year-on-year pace is expected to remain unchanged at 2.7%.
Last week’s first report on first quarter GDP (showing a slowing to an annual 2.3% rate from 2.9% in the December quarter, and a rise in employment costs to around 2.7% (annual).
The inflation rate though will be highlighted by the release tonight in the US of the Fed’s favourite measure, the core private consumption deflator for March. That is likely to show a core annual rate (at last) of 2%.
The report tonight will also detail household income and spending which are likely to have risen. Car sales data will be out mid week, pending home sales tomorrow night, and the usual start of the month surveys of manufacturing and services which are forecast to remain solid for the US.
The March quarter earnings reporting season will continue with around 150 companies in the S&P 500 reporting – led by Apple early Wednesday morning, Sydney time.
McDonald’s, Aetna, Merck, Garmin, Yum Brands, Merck, Pfizer, the New York Times Co,, Kraft Heinz, PG&E and Berkshire Hathaway are also down to report, with Warren Buffett’s company holding its legendary annual meeting all day in Omaha on Saturday.
In Europe March quarter GDP is out midweek, and the early estimates of April inflation and unemployment.
The GDP data is tipped to show a quarter on quarter rise of 0.4%, March unemployment is tipped to drop to 8.4%, but core inflation is forecast to remain stuck at 1% (Hence the European Central Bank’s statement last week that it will continue its easing program past next September if need be).
In the UK, corporate results keep flowing, but the big news will be the proposed retail merger where grocery chains, J Sainsbury and Asda (the second and third supermarket chains) are planning to announce a 15 billion pound merger this afternoon, Sydney time. News reports emerged over the week about the deal.
Asda is owned by Walmart, the world’s biggest retailer and it will end up with around 40% of the merged company after the planned all share marriage.
Brexit talks between the UK and EU continue this week in Brussels on Wednesday night, our time.
In Asia, the two surveys of Chinese manufacturing activity (one today and one tomorrow) will be the most important releases.
They will be watched closely for any sign of the slowdown in March has extended into April.
