There’s a lot happening this week – it’s the start of the month. Major factors or events this week include the US jobs data for July on Friday, as well as the continuing spread of Covid’s Delta variant, the June 20 earnings season continues and in Australia there’s the Reserve Bank’s August monetary policy meeting which assumes greater importance now that the Sydney lockdown is worsening and a three day hard shut in for southeast Queensland revealed on Saturday that looks certain to be extended.
There’s also the start of month surveys of manufacturing and service sector activity, with Australia first, followed by updates from other countries. The second Chinese survey is tomorrow and the service sector updates will be out later in the week.
In Australia the RBA meeting was supposed to be fairly routine after all the important decisions taken at the July meeting (See separate story), but that has been changed by the looming damage to the economy from the lockdown in Sydney, the shorter closures in Victoria and South Australia and now the shock three closure in the southeast of Queensland.
Moody’s and the AMP’s Shane Oliver both expect the RBA to keep its interest rate settings steady and the cash rate unchanged at the record low 0.1% and possibly change its decision to taper its bond purchases from September in light of the increasing economic costs posed the domestic outbreaks.
“We expect that Australia’s seasonally-adjusted retail sales decreased 1.8% in monthly terms in June, following a 0.4% increase in May, reflecting the hit to consumer spending caused by shutdowns in Victoria and New South Wales,” Moody’s wrote at the weekend.
As well Australia sees the release of start of the month data on house prices for July (Monday morning), retail sales, trade and building approvals and finance data – all for June and the financial year.
Shane Oliver sees the CoreLogic data showing another strong 1.6% gain in home prices for July led by Sydney despite its lockdown and Brisbane.
He says June building approvals should bounce after a sharp fall in May and little growth housing finance at record levels (both tomorrow), June retail sales data (Wednesday) confirming the surprise 1.8% decline but show a 0.7% rise in real terms for the June quarter.
The trade data for July is expected to show a near record surplus around $9.5 billion (Thursday). With the sharp fall in iron ore prices, the trade surplus will be the peak for a while.
The Australian June half and full year profit reporting season steps up pace this week.The AMP’s Shane Oliver says consensus “earnings per share growth expectations are for a 49% rise in earnings for 2020-21 and a 56% rise in dividends.”
Only 5 major companies will release results in this week though including GUD, Nick Scali, Credit Corp and Genworth and Resmed.
“As we have seen with Rio Tinto’s record interim, resources companies will see a near doubling in profits followed by 58% growth in bank earnings and a 47% gain in media sector profits,” Dr Oliver predicted. “Telcos, general industrials and utilities are likely to see a decline in earnings.”
“Outlook statements are likely to be cautious though given the uncertainty posed by recent coronavirus outbreaks and lockdowns, particularly that in NSW,” Dr Oliver wrote in his weekly note.
Globally, this Friday’s US jobs report will see more jobs were created in July, but the question will be if the expected number turns out to be lower than forecast as Covid delta variant infections hit states like Florida, California and much of the Republican-controlled midwestern and southern states (where vaccination rates are low).
Economists forecast around 788,000 new non-farm jobs were created in July, down from 850,000 in June. The unemployment rate is expected to dip to 5.7% from 5.9%. Average hourly wages are expected to rise 3.9% year over year.
Last Friday saw the monthly data on consumer spending and inflation (favoured by the Fed) released in the Personal Consumption Expenditure report for June.
It showed a rise in consumer spending and also a rise in core PCE inflation (without food and energy) to an annual rate of 3.5%, up from 3.4% in May The market forecast was for a 3.6% rise. The rise was the fastest increase for the month of June since 1991.
Month on month PCE inflation rose 0.5% in July, steady on May while the core month on month reading was 0.4%, down from 0.5% in May and lower than April – indicating a small slowing in the pace of growth in costs.
That was after the first estimate of US June quarter economic growth came in at 1.6% from March, when it rose 1.5% from December. On an annual basis, GDP rose 6.5% which was much less than the optimistic 8.4% market forecast.
US car sales data for July will be out today and tomorrow and will again show the negative impact from the computer chip shortage, even though Ford last week revealed better than expected revenue and earnings in the June quarter. GM reveals its June quarter figures this week.
“The US June quarter earnings reporting season is now 55% done with a huge 88% of results so far beating expectations (compared to a norm of 76%), 84% beating on revenue and consensus earnings expectations for the quarter have been revised up from 62%yoy at the start of July to now 79% with upside surprise concentrated in cyclical sectors,” Dr Oliver wrote in his weekend note.
Dr Oliver says that “given the rebound in various macro variables we remain of the view that this could end up near +90%.”
This week more than a quarter of the S&P 500 releasing updates. Media stocks will dominate – CBS Viacom, Fox Corp, News Corp, the New York Times, plus others like Kellog, Uber, Marriott, Wynn Resorts, Simon Property (shopping centres), Transocean, Pioneer Natural Resources (shale oil), AXA, Alibaba, Eli Lilly, Clorox, Discovery. KKR, Warner Music, Ralph Lauren, Avis Budget, Tupperware, Marathon, Electronic Arts, Roku, General Motors, Etsy, KKR, Apollo Global Management, Allstate, MGM Resorts, Expedia, Shake Shack, Cigna, Thomson Reuters, Zillow, Liberty Media, Fluor and BP.
In Europe there’s industrial production and retail sales for the eurozone which are tipped to show more signs of an economy strengthening – especially in Germany and Italy. There is also a flood of results from European companies, especially banks and oil majors (like BP).
In Asia, besides the surveys of manufacturing and services, the meeting of the Reserve Bank of India is the major event. It is expected to keep its benchmark repo rate unchanged at 4% as the toll of new Covid cases continues to fall.
And China’s trade data for July will be released next Saturday.
