Three events matter this week for investors around the world – the Fed interest rate decision early Thursday morning, Sydney time, the first estimate of US third-quarter GDP growth a few hours earlier and then the US jobs report for October late Friday night, our time.
While local investors will concentrate on inflation data for September on Wednesday and a speech by Reserve Bank Governor Philip Lowe tomorrow night and financial results from the ANZ and Macquarie late in the week, it will be the news from the US that will demand all the attention.
Any further news of progress on a partial agreement in Donald Trump’s trade war with China will add to the positive momentum that emerged late last week, while start of month surveys of manufacturing on Friday will be watched to see if a slight steadying seen during October, is confirmed.
US market surveys put the chances of a 0.25% rate cut (taking the Federal Funds rate to a range of 1.5% to 1.75%) at 90% – so if there was no cut there would be a big sell-off as investors threw a tantrum or two.
Friday’s jobs report will on the face of it, support a rate cut with soft numbers – around 100,000 new jobs and a kick up in the jobless rate to 3.7% and a further slowing in wage growth to well under 3% (annual).
But those figures will be influenced by the near month-long General Motors strike that ended on Friday with acceptance of the new offer from the company by striking employees.
For that reason, the jobs data might not be an accurate estimate of US jobs growth and economists will be busy stripping out the impact of the GM strike on the data.
Wednesday sees the first of three estimates of US third quarter economic growth with an annual rate of around 1.4% to 1.6%.
AMP chief economist Dr. Shane Oliver says the weak GDP reading will be “on the back of weak business investment not helped by the trade war.”
The first GDP estimate for the quarter doesn’t have update date trade and current account data, as well as the final figures on personal consumption expenditure and prices (the measures preferred by the Fed) which will be released on Thursday.
Once that extra data is received the first estimate is quite often revised sharply (at the end of November) in the second estimate.
Dr. Oliver says the PCE report is expected to show solid consumption spending and “core private final consumption deflator inflation falling slightly to 1.7% year on year.”
Friday also sees the release of world surveys of manufacturing – China’s two surveys are out at week’s end and are expected to manufacturing is still sluggish. Europe and America’s surveys are expected to show some steadying in activity at low levels. In America, it will pay to ignore the influence of the GM strike.
In addition, the third-quarter earnings season continues with more than 150 S&P companies reporting. Apple, Facebook, Alphabet (Google) are the ones to watch for the US. US earnings look like being better than expected with a small rise in instead of a small fall a month ago.
A bit of Eurozone data will be released. Thursday is expected to show September quarter GDP growth remaining soft at 0.1% quarter on quarter or 1% year on year, core CPI for October remaining weak at around 1%yoy and unemployment for September unchanged at 7.4%, according to the AMP’s Dr. Oliver.
And the Bank of Japan meets on Thursday and is likely to remain on hold and hinting at more easing. Industrial production data (also on Thursday) is likely to show a small rise and labour market data (on Friday) are likely to show no real change
In Australia there’s the CPI for September on Wednesday, house prices for October on Friday, credit growth for September and building approvals for September (both on Thursday), the ANZ full year and Macquarie interim, plus the full-year result from Orica (see separate stories).
