After another week of recovery on stocks and a lift in risk appetite, financial markets are set for a big week in Australia and globally with a raft of important data and a full week of corporate earnings reports in the US.
In what was a really positive week, oil was the big mover with a rally of 8.67% to close the week in the US at $49.49. There was even a brief foray above the $50 level on Friday night. Europe out-rallied the US over the course of the week with the FTSE in London and DAX in Frankfurt up 4.67% and 5.69% respectively. The Dow rose 3.71%, the S&P 500 3.26% while the Nasdaq trailed with a gain of just 2.60%. Overall that brings the recovery in the S&P 500, the global bellwether stock index, to 7.6% from the September low of 1,872.
Locally it was a good week for stocks as well with the increased risk appetite and improved performance of global stocks combining with improved commodity prices to give the local index a boost. As at Friday the ASX 200 closed at 5,279 up 4.7% on the week. That brings its recovery from the September lows to 7.34%.
The Aussie dollar has been a primary beneficiary from the increase in risk appetite over the past two weeks and increased commodity prices as well ending the week at 0.7332. That’s the first time the Australian dollar has closed above 73 cents since August 21st and takes the rally to 4 full cents from the September low for a gain of 5.76%. The Kiwi and CAD are also doing well as have other commodity currencies such as the Norwegian Krona which has rallied strongly against both the US dollar and the Euro.
Of course the key to everything, the recovery in markets and sentiment, has been the fading in expectations that the Fed, and now the Bank of England, is going to be raising rates any time soon. Over the next week or so earnings reports from the US are going to be far more important.
Brian Belski, BMO Capital markets chief investment strategist, the man who back in late September gave 4 reason to be bullish stocks, said in a note Friday that a large number of client conversations are being dominated by negative sentiment about earnings. But Belski says:
we firmly believe near-term earnings growth will wind up being much better than expected when all is said and done. In fact, a more comprehensive look at the earnings picture and trends in corporate guidance and earnings quality likely set the stage for another surprisingly resilient reporting period, in our view.
We’ll know over the course of this and the next week.
Turning now to the data Australia and the NAB’s economics team says it’s “another hefty week in store for the Australian calendar… The key NAB business survey and consumer confidence reports on Tuesday and Wednesday respectively will draw the market’s attention, followed on Thursday by the all-important September labour force report.”
The NAB business survey is always in my opinion the most important economic release of the month because it is so rich in information about business conditions and confidence as well as the trading conditions, profitability and employment intentions (among other things) that underlie conditions.
Last month’s print for conditions of 10.7 is much stronger than the post-GFC average of just 0.3. Should business conditions remain at or near current levels it points to solid non-mining final demand and improved total domestic demand.
Here’s the NAB’s great chart:
Business confidence should follow conditions eventually but it, like consumer confidence, has been buffeted by the ructions in global markets.
That’s the point Westpac chief economist Bill Evans made in his preview to the Westpac-Melbourne Institute consumer sentiment to be released Wednesday. We could be in for a solid rebound, though, with Evans suggested noting:
The Oct survey is in the field over the week ended Oct 10. Sentiment may continue to be affected by financial market turbulence although both the ASX and the AUD have staged recoveries since the Sep survey (up 3.4% and 2c US respectively). The US Fed’s decision not to begin raising rates in Sep may factor although these sorts of international developments tend to have a low register with the Australian consumer. Closer to home, sentiment is more likely to be affected by the leadership change with Malcolm Turnbull replacing Tony Abbott as PM in mid-Sep.
The NAB agrees.
Also out Wednesday is the latest building approvals and then Thursday we get the release of what the market and traders see as the most important data release in Australia with the September employment report due for release.
After last month’s increase of 17,400 the market is looking for a rise of just 7,100. But Westpac is forecasting 15,000 and the NAB 11,000. The market and these two banks are looking for unemployment to be unchanged with a print of 6.2%.
As if that’s not enough the RBA will release its FInancial Stability review on Friday morning.
Turning offshore and like Australia the calendar is light on Monday but Chinese trade data at 1pm ADST on Tuesday is a huge event risk for the market. TD Securities head of Asia-Pac macro research Annette Beacher said on Chinese trade in a note Friday, “August was a shocking trade month, with imports –7.1% (sa) in the month. A rebound in September is likely after a few one-offs dampening Aug, so we look for exports growth to ease to –4.1% and imports to be also trimmed to –12.4%, more optimistic than consensus.”
A rebound would support the current improvement in global risk appetite.
Inflation in China on Wednesday will also be important, but less so than trade.
In the US there is raft of Fed speakers across the week with Evans and Lockhart kicking things off on Monday night. Bullard is speaking Tuesday night and Thursday night while Dudley is also speaking.
Also of note in the US is the NFIB small business index Tuesday, retail sales, PPI, and Beige Book Wednesday, then the CPI, Empire State, Philly Fed Thursday. The week ends with industrial production, JOLTs job openings and consumer sentiment Friday.
In Japan forex traders will be interested in the BOJ minutes on Tuesday. Is, or how close is, the BoJ to increasing QE again, that is the question. Also out Tuesday will be consumer confidence and machine tool orders. Industrial production is out Thursday.
In Europe and the UK there are ECB speakers aplenty, and the German and EU ZEW surveys on Tuesday. CPI and PPI in Britain Tuesday will be vitally important in what looks like a move by the BoE away from tightening. Wednesday sees the release of UK employment data and EU industrial production while the week ends with wholesale inflation in Germany and EU CPI, and trade.
It’s a big week. Here’s the NAB’s excellent calender of all the key data and events.
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