Interest rates in Australia, jobs in the US and the continuing ripples from Brexit will dominate the week ahead here and offshore.
While the week ahead will no doubt see bouts of Brexit-related nervousness, it should continue to settle down in the absence of any new developments in Europe and Britain.
The US market is closed tonight for the July 4 national birthday holiday, meaning markets in Asia (including Australia) will trade without a lead from the world’s biggest market for two sessions – today and tomorrow.
In Australia we will see reaction to the inconclusive Federal election result. Look for a weak day’s trading as investors fret about the impact on the budget and government finances, especially from the messy Senate result, will not become clearer for two weeks, at least.
However, the dominant event will be tomorrow’s meeting of the Reserve Bank board and whether it adds another cut to May’s surprise 0.25% reduction in the cash rate to 1.75%.
The uncertainty caused by the inconclusive result means the RBA won’t cut and will sit and wait to see the eventual outcome.
The AMP’s chief economist Dr Shane Oliver expects the RBA to leave interest rates on hold for the second month in a row and reckons August could see the chances of a cut rise because we will have the June quarter CPI on July 27 which will tell us if inflation remains weak, or has picked up with rising fuel prices.
The central bank’s post-meeting statement from Governor Glenn Stevens should be read for any mention of the impact of the sharp falls in government bond yields in the past week or so (on top of the already huge fall so far this year), and the worrying impact of the Brexit vote in the UK.
Our 10 year bond yield closed at an all time low of 1.95% on Friday, down a massive 1.06% in the past year, according to Bloomberg data.
Besides the RBA meeting, there’s building approvals for May out later today and Dr Oliver says there could be “a sharp fall after several months of strength”.
Retail sales figures for May are out tomorrow, along with the trade data for the same month, the monthly ANZ job ads survey for June and the monthly survey of the services sector will also be out tomorrow.
A quiet week in the corporate area, but watch for the expected update later today from Perth-based ship builder Austal. It could be more bad news on a big US government contract.
In the US, the June payroll employment on Friday night will be vital to the Fed’s examination of the state of the US economy at its July meeting.
Other data on factory conditions out on Friday showed a strong rebound in the level of activity to a 15 month high, a reading that will encourage the Fed to look at a rate rise sooner than later.
The AMP’s Dr Oliver says the number of new jobs “is likely to bounce back by 180,000 jobs after the disappointing May gain of 38,000 with unemployment remaining at 4.7% and wages growth running around 2.6% year on year".
"But given the threat to confidence and growth from Brexit it won’t be enough to signal an imminent Fed rate hike in July. It will help ease fears regarding US growth though," he wrote at the weekend.
As well as the jobs report, the US will see the monthly services sector survey for July released on Wednesday night, our time, along with the May trade data (deficit).
The minutes from the last Fed meeting (also out on Wednesday night) are likely to be very dated given the Brexit vote outcome and the surge in uncertainty in the UK and EU.
Chinese CPI inflation (next Sunday, July 10) for June is likely to have remained around 2% year on year but producer price deflation is likely to show a continued easing.
Friday’s two surveys of manufacturing activity in China were mixed – the official report which looks at bigger companies was OK without being brilliant, and the Caixin/Markit survey which looks at smaller companies, showed a worrying weakness and is pointing to a weakening in activity.
