The week ahead offshore will see continued reaction to the Brexit referendum in Britain, but in Australia Saturday’s Federal election (finally) will dominate.
The ripples from Brexit will roll over markets this week, but the impact here will be minimal compared to the continuing uncertainty in the UK and Europe.
As well the usual start of month surveys of global manufacturing activity will be out on Friday, starting with China.
A weak reading from China could add to global woes.
Fed Chair Janet Yellen is scheduled to speak in Portugal on Wednesday and investors will be looking to see what she thinks about the impact of the Brexit vote and uncertainty on the path of US interest rates from the Fed.
The outcome of yesterday’s Spanish election will also be a factor and the uncertainty it has caused will add to the fears about the eurozone.
The final days of our election campaign though will drown out all but the biggest waves flowing from Britain’s self-defeating decision to leave the EU.
And in a week’s time we will be looking to another three years of a new government, or weeks of protracted talks if the result is close.
But either way the impact on our markets will be minimal compared to the Brexit vote and what we saw on Friday.
In fact for markets the meeting of the Reserve Bank board a week tomorrow will carry more interest than the election result, even if the ALP wins the poll.
But if the ALP does win, then investors will have to be alert to one of its centrepiece policies – the Royal Commission into the banks.
That will certainly unsettle the markets and see a sell-off in bank shares. But that has yet to happen.
This week also sees the end of the 2015-16 financial year in Australia (and the second quarter), setting up the start of the company reporting season in late July here and the second quarter season in the US and Europe.
And the two manufacturing surveys for China will act as a precursor for the June monthly and quarterly economic data which will start being issued in mid-July.
So looking at Brexit’s rolling impact – UK Labour MPs meet tonight in London and could consider a no-confidence motion in leader Jeremy Corbyn.
Meetings will continue in the UK government about the leadership and what to do next.
In Europe, EU leaders meet Tuesday to discuss the vote (Mr Cameron hosts a dinner for the leaders that night and is being pressured to trigger the departure process) while the EU Parliament also starts a session that will discuss it.
The leaders of Germany, France and Italy will meet tonight to discuss the situation. Meetings were held by the six founding members of the EU on the weekend (Germany, France, Italy, Luxembourg, Netherlands and Belgium).
Market strategists expect global markets to remain skittish throughout the week, and to lurch violently if there are sudden bits of news that worry them.
“How events actually unfold from here remains uncertain. The full implication of the vote will emerge in time, and market volatility will likely remain elevated,” said David Joy, chief market strategist at Ameriprise, in a quote in the Financial Times at the weekend.
This week also sees several important pieces of economic data on the US economy – the consumer spending and income report for May (including the Fed’s preferred inflation measure), house prices for May and factory data.
And tomorrow night sees the release of the third and final estimate of March quarter GDP by the US government. That will be looked at to see if there is any revision from the 0.8% annual rate of the second estimate.
The second, and more important, round of the Federal Reserve’s stress tests on the 33 biggest US banks and foreign banks subsidiaries are due out on Wednesday night, our time.
The second report, which comes after all of 33 banks last week passed the first round, will determine whether lenders can increase dividends and share buybacks.
US quarterly earnings are also due out from Nike, the athletic apparel maker, along with semiconductor group Micron and General Mills.
In the eurozone, besides the impact of the UK Brexit vote, markets will also look at bank lending (tonight, our time) and economic confidence readings for June (Wednesday night, our time)
Preliminary inflation data for June for the eurozone is out on Thursday night, our time, and employment data on Friday night.
In the UK the final estimate of first quarter GDP will also be released. The previous reading showed a rise of 0.4% from the December quarter when growth was 0.6%.
Don’t be surprised if the manufacturing activity survey for the UK shows a sharp fall, triggering talk of a recession.
In Japan, industrial production data for May is out Thursday, after retail sales figures for May the day before. Jobs data, also for May, are out on Friday as well as the latest inflation figures which will show a country still stuck in a deflationary rut, thanks to the surging yen.
And Friday also sees the June quarter Tankan survey of business sentiment released by the Bank of Japan. Economists say it will reveal a downturn in optimism for all companies thanks to the rising yen, the impact of the earthquakes in April and continued softness in household spending.
In Australia, besides the election, we will also get new home sales (Wednesday), ABS job vacancies for the three months to May (Thursday) and home prices for June (Friday from RPData CoreLogic) and the June survey of manufacturing activity.
The only local corporate result is Collins Foods later today.
