An exceptionally busy week for markets with interest rate decisions, quarterly earnings, employment and wages data and economic activity surveys from major central banks, economies and companies.
It’s fair to say there will be few weeks this year with such a deluge of important data and decisions.
The RBA’s monetary policy decision tomorrow will be the more important for Australian markets 9especially ahead of the 2023-24 federal budget), but we can’t forget the US Federal Reserve’s expected rate rise early Thursday morning which will again impact markets
The RBA is expected to leave the cash rate steady at 3.6% for a second month.
A day and a half after the Fed decision, Friday’s US jobs and wages data will start the next cycle towards another Fed meeting in mid-June while the European Central Bank’s decision on Thursday night won’t have the same impact here or in the US.
And while investors will be waiting for the Fed’s decision, they will have to hope for a quick resolution of the fate of a 4th US bank hovering on the edge of collapse
San Francisco-based First Republic almost collapsed in March’s banking mess when Silicon Valley Bank, Silvergate Bank and Signature Bank failed.
Talk on Friday of a takeover by regulators saw First Republic’s shares lose nearly 40%.
But reports emerged at the weekend of an auction between several leading banks – JPMorgan Chase and PNC were two mentioned – and a decision early Monday morning before markets in Asia open for business.
These renewed banking pressures again raises the question for US markets investors, what’s more important for the Fed – high inflation, a stuttering economy or a wobbly banking system (again)?
Before the end game started for First Republic late last week, a rate rise of 0.25% was widely tipped to be announced around 4am Thursday (Sydney time).
Seeing the Fed lifted rates 0.25% at the end of March when US and European banking was unsettled (remember the Credit Suisse bailout?), most economists think the US central bank will not be afraid to push the federal funds rate up another quarter of a per cent this week.
But that could very well be the wrong decision as the US economy shuffles closer to a possible recession after a weaker than expected first estimate of US March quarter GDP.
After the 1.1% first estimate of March quarter economic growth and then the Personal Consumption Expenditure figures for the month of March (especially consumer spending and core inflation), it’s fair to say the US economy is starting to wobble.
Globally, March quarter earnings reports will flow from a number of major markets, led by the US and Apple’s report, plus the annual meeting and quarterly results of Berkshire Hathaway next Saturday.
There’s also the start-of-month surveys of manufacturing activity (it started with China’s weak report on Sunday a big shock) and services activity later in the week.
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The RBA is expected to sit on rates, leaving the cash rate unchanged at 3.6%.
The AMP’s chief economist, Shane Oliver says we can expect the RBA to leave interest rates on hold for the second month, but maintain its mild hawkish guidance.
“The fall in March quarter inflation taking it below RBA forecasts at both a headline and trimmed mean level and the steady decline in monthly inflation through the quarter has bought it more time to assess the impact of prior hikes, particularly given that not enough new information has become available since the April meeting.
“However, it’s a close call and the risk of more rate hikes remains high with inflation still too high and the RBA particularly concerned about the impact of stronger than expected population growth on housing related inflation with rising home prices now starting to reverse the negative wealth effect and upside risks to wages growth,” he wrote in his weekend note.
“As a result, the RBA is likely to maintain guidance that further tightening “may well be needed” and that “in assessing when and how much further interest rates need to increase”, Dr Oliver wrote.
Money markets are now pricing in no rate hike in May and only 40% chance of a 0.25% rise by August.
Governor Phillip Lowe will no doubt mention some of the updated forecasts in his post-meeting statement tomorrow, but they will be expanded on in the second Statement of Monetary Policy of the year to be released on Friday.
There’s also the usual start of month data on house prices (out today), retail sales for March on Wednesday. March trade on Thursday and lending finance data for the same month on Friday.
There’s also car sales data for April and the first four months of the year.
Three major banks report this week – the NAB releases its interim figures on Thursday and the ANZ releases its half year figures on Friday, while Macquarie pushes out its full year figures on Friday as well.
Rio Tinto holds its 2022 Australian AGM in Perth on Thursday.
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In the US, the Fed’s May meeting of course dominates, but so will the March quarter reporting season led by Apple’s figures on Thursday.
A host of other companies from the US, Europe, the UK and Asia also report this week. Some of those are BMW, Munich Re, Allianz, VW, HSBC, Arcelor Mittal, Pepsi Co, AMD, Starbucks, Amex, Qualcomm, Conoco Phillips, Occidental, Marathon Petroleum, BP and Shell. Ford is another reporter, along with Kraft Heinz and Barrick, the world’s second biggest gold miner.
Mostly better than expected US earnings are proving to be a small surprise. So far 53% of S&P 500 companies have reported so far with 790% surprising on the upside which is far better than in the December quarter and above the long-term norm.
The average beat is running at 6%. Earnings are now on track to be down 3.7% for the quarter, a smaller decline than the 6.7% decline projected on March 31, according to FactSet, the final data company.
Saturday sees the Woodstock of Capitalism, otherwise known as the annual meeting of Warren Buffett’s Berkshire Hathaway, which also releases its March quarter figures the same day. Around 40,000 people are forecast to visit Omaha, Nebraska for the meeting and to hear Buffett’s lengthy Q&A.
News on the future of Vice Chair Charlie Munger might emerge as well. He turned 99 at the start of the year and has pulled back from other board responsibilities.
The jobs and wages data on Friday will show around 175,000 new jobs and steady wages growth at an annual 4.2%, according to the AMP’s Shane Oliver.
US car sales data will be out today and tomorrow and analysts will again look closely at sales of EVs.
Counting all EVs, including Hummers and MX-30s, US EV sales increased by 45% year over year and reached 258,882, a record quarter for the US market. US analysts reckon that will push US EV sales for the year to around 1.1 million by the end of the year.
Sunday sees the release of the official business activity surveys for China’s huge manufacturing and services. The AMP’s Dr Oliver says the surveys are expected to show a slight easing driven by services after the initial reopening boost but to remain strong overall.
