The Economic Week That Was

The RBA left rates on hold last week in another decision bookmakers wouldn’t, couldn’t or shouldn’t take odds on. It’s the biggest monthly national roll of the dice and in this fine nation of gamblers it’s clearly nothing short of  a national disgrace that punters can’t put the house on the outcome.

I’d have lost mine after last week’s latest board meeting when new Governor Michele Bullock kept rates at 4.10% for the fourth straight month. On the plus side, I’m still a decent shot at losing my house and contents (wife, kids, printer) as my bank doesn’t bother waiting for the RBA before it raises mortgage rates anyway.

Also anyway: inflation in Australia is far from done with us.

For anyone that’s bought a pack of mid-range potato chips (Red Rock Deli and up) at Woolies eat al, it seems 6 or so dollarbucks is pretty exorbitant and we chip-chompers at least understand why the the RBA retained their tightening bias.

She might be called Bullock, but the new Guv’nah is all Bear on the current price-of-life site – even indicating in the RBA’s accompanying post-match statement that the risk of more rates is very real:

1) The delayed nature of rate rises is very delayed, but that doesn’t mean the bank will before moving higher

2) Productivity (outside this wrecking ball of a newsroom anyway) is poor. You, your friends and family, colleagues you admire or despise are a disappointment to the central bank

3) A weak AUD and a strong USD

4) Signs of a pickup in wages growth (outside this wrecking ball of a newsroom anyway) are evident

5) Not enough people are losing enough jobs

6) Although outside the core price (inflation) read petrol prices are up 30% in a few months. As mentioned chips also cost a lot now. These two segments might be volatile to price movements, but that don’t mean nuthin’ when all the volatility and movement is in the same upward direction.

On the plus side, chief economist and head of investment strategy at AMP Dr Shane Oliver says cool your jets because those previous rates will eventually turn up in the key indicators and Michele and her board will soon have the proof they need to call it a cycle.

“However, if – as we expect – the economy continues to weaken as past rate hikes increasingly bite this will maintain downwards pressure on inflation heading off any further rate hikes and ultimately allowing the RBA to cut rates next year, starting around June.”

You heard it here first. Actually the Doctor’s been saying this for ages, but tell your friends.

Everywhere Else

Getting highly technical Dr Oliver said US economic data was messy last week. Which goes a long way to explaining the messy markets.

Both US and Australian 10-year bond yields have been as upwardly mobile as Patrick Bateman, spraying blood and shivers through global markets. But minus any real catalyst – other than the same message the Federal Reserve’s been giving all year – only serves to bring into stark relief the sheer emotion on tap in Wall Street right now.

Betashares’  head economist David Bassanesse says it’s the bond sell-off without ‘any notably new in the economic data.’

Just familiar doubts and fears amplified.

“(The bond rout) appears more to reflect concerns with rising oil prices and Fed rhetoric discounting the possibility of rate cuts early next year,” Bassanese said. “Moody’s warning of a potential US credit rating downgrade due to mayhem in Washington did not help the bond market mood, though equity markets at least seemed to shrug it off.”

The ISM business conditions indicators were mixed with manufacturing up but still weak and services down but still solid. Prices paid indicators in both remained well down from their highs and OMG – the jobless claims – muddled up but still low though job openings rose in August… Then Wednesday in NY, the ADP employment survey slowed – gleeful markets jumped – conveniently ignoring that this indicator and its historical accuracy are said to be regarded with suspicion.

In the EU markets tanked even as producer price inflation drifted lower -11.5% year-on-year. Better than the  +41%yoy last year. Jobless rate was flat at 6.4%.

China’s Caixin business conditions PMIs fell in September offsetting the improvement seen in official PMIs and suggesting that smaller private firms (which have a higher weighting in the Caixin survey) are not doing as well as larger state-owned firms.

“Overall, it adds to the impression that growth has stabilised, but it still looks weak relative to pre-pandemic levels,” Shane Oliver says.

Japan’s Tankan business conditions survey showed further improvement in the September quarter particularly for large businesses, but wages growth remained subdued in August.

Global share markets fell again over the last week as bond yields rose even further continuing to put pressure on share market valuations. Most Fed officials are continuing to reiterate their “high for longer” message on interest rates and a rise in job openings and US political uncertainty with the replacement of the House Speaker didn’t help.

From their July highs US shares have now had a fall of 8%. The poor global lead saw Australian shares remain under pressure despite the RBA leaving interest rates on hold with the ASX 200 on track for a fall of around 1.2% for the past week with falls led by resources, retailers, industrial and utility shares. From their July highs Australian shares have had a fall of around 8%.

Bond yields rose further. Demand doubts saw oil prices fall for a change and we can see it today at the pump.

Base metals, gold, nickel copper and iron ore prices largely fell.

The local dollar is at an 11-month low.

That’s where the ASX found itself on Wednesday too…

 

The Week on the ASX

The ASX would like a fresh start.

There’s a lot to bounce back from… this is how the ASX Sectors will start Monday morning:

Via MarketIndex

Last week failed to launch, and in fact went back almost 12 months, touching new lows for 2023.

September did end after all… but we haven’t had too many Green Days in October worth waking up for.

The ASX200 quaked (as did global markets) under the gaze of rising long-term US bond yields. Energy stocks led some very broad-based losses, but oil markets were settling over the weekend, although any spillover from conflict in Israel might run oil prices into next year.

However, after early October pressure, the longer-term picture looks more positive from a macro perspective, says Michael Gable from Fairmont Equities.

”Unfortunately, the short-term movements can be front of mind for many people… The Australian market, as we know, has been trading in a sideways range all year. Recently it fell to the extreme low of that range.

“Those that follow our analysis know that we picked March as a major turning point and opportunity, the set-up right now looks the same. An oversold RSI* (ED: the RSI is generally thought to be overbought when above 70 and oversold when below 30) doesn’t occur often at the index level, and just like in March.. We are also seeing US markets with the same oversold indicators,” Michael says.

Via Fairmont

*That’ll be the Relative Strength Index (RSI), developed by J. Welles Wilder. It’s something markets people call a momentum oscillator that measures the speed and change of price movements. The RSI oscillates between zero and 100… the wee circles about are in there around 30 – ‘the oversold zone’. 

 

The Week That Will Be

Fed minutes from the September FOMC meeting are out this week. As is a read on US inflation with a CPI update.

China will offer inflation/deflation data as well as consumer price data and some factory PMIs.

August GDP and industrial production numbers will be updated for the EU and ex-EU, UK.

The S&P Global Investment Manager Index turns up, a survey measurement from money managers steering some US$3.5 trillion of assets.

In our hood, the prelim GDP out of Singapore  will be overshadowed by the big ticket mainland China inflation and trade reads.

This Chinese economy after that Golden Week holiday… well, bad news might be tough to swallow and someone, somewhere is going to throw a tanty.

 

Josh Gilbert’s 3 things to watch for the week ahead

Josh Gilbert, market analyst at eToro, shares his three things to watch in Australia in the coming days.

1) Consumer Confidence AU

On Tuesday, the latest monthly figures for the Westpac-Melbourne Institute Consumer Sentiment index will be released. Last month, the index fell by 1.5% month-on-month to 79.7, which continued the trend of declining confidence that has continued since a brief spike of 81.3 in July. An additional 1-2% drop in confidence is on the cards for October, given the RBA’s string of consecutive rate hikes earlier this year is now well and truly being felt by households.

The most recent ASX earnings season indicated that many Aussies have tightened the purse strings on consumer goods, and while the Christmas period will undoubtedly provide a boost to retailers, there’s not much relief on the horizon for households in the interim. That said; the RBA’s hiking cycle seems as good as done. It would take a significant surprise in data to change that, especially with the moderation of oil prices in recent days. Therefore, consumer confidence could begin to pull out of a decline anytime from now.

2) US Inflation

Following this week’s key jobs numbers, it is another big week of US data, with monthly CPI handed down on Thursday next week. US core inflation has continued to trend lower since March, and next week’s reading is set to see another fall to 4.2% from 4.3% the month prior. The risks in this inflation report, like we saw locally in the last few weeks, come from headline inflation following the recent spike in oil prices.

Expectations are for headline inflation to remain at 3.7%, but there’s a chance this could move higher to 3.8%, with the decline in inflation stalling since June after reaching a low of 3%. The fall in oil prices in recent days might give investors some relief that the Federal Reserve won’t be forced to hike rates again, especially as consumer spending slows and core inflation continues to trend lower. Equity markets have been spooked over the last few weeks over the US economy’s strength and rise in 10-year US Treasury Yields. However, a better-than-expected inflation reading would provide a much-needed boost for markets and help subdue some concerns of rates being higher for longer.

3) Chinese Inflation

After moving into deflation in July, Chinese inflation is set to rise modestly in September to 0.1% due to higher energy costs. Recent policy support won’t be an overnight success and will take time to drive demand that will lift prices. Despite recent measures, concerns remain over the Chinese economy as the property crisis continues to deepen and put further pressure on growth.

On top of CPI, next week, loan data will be handed down, another key data point for demand after rising last month. Unfortunately, given the uncertainty over China’s recovery, the local materials sector remains under pressure, with commodities seeing continued volatility in the near term. The good news is that the worst has likely passed, and we should begin to see China’s economy continue to stabilise, with a recent pick up in production and retail sales, which translates into better news for the local market.

The Australian Economic Calendar

Monday October 9 – Friday October 13

We’ve got a quiet one on the data front.

Source: Commsec, Trading Economics, S&P Global Research, AMP 

TUESDAY

NAB Business Confidence (Sep)
Westpac Consumer Confidence (Oct)

WEDNESDAY
Australia Building Permits (Aug)

 

The Everyone Else Economic Calendar

Monday October 2 – Friday October 6

Monday 9 Oct
Canada, Japan, South Korea, Taiwan Market Holiday
Indonesia Consumer Confidence (Sep)
Germany Industrial Production (Aug)

Tuesday 10 Oct
Taiwan Market Holiday
Philippines Trade (Aug)
Malaysia Unemployment (Aug)
Norway Inflation (Sep)
Turkey Industrial Production (Aug)
Turkey Unemployment Rate (Aug)
Italy Industrial Production (Aug)
United States Wholesale Inventories (Aug)

Wednesday 11 Oct
South Korea Current Account (Aug)
China (Mainland) M2, New Yuan Loans, Loan Growth (Sep)
Indonesia Retail Sales (Aug)
Germany Inflation (Sep, final)
Japan Machine Tool Orders (Sep)
Taiwan Trade (Sep)
Italy Industrial Production (Aug)
Brazil Inflation (Sep)
Canada Building Permits (Aug)
United Kingdom Report on Jobs (Sep)
United States PPI (Sep)
United States FOMC Meeting Minutes (Sep)
S&P Global Investment Manager Index (Oct)

Thursday 12 Oct
Japan Machinery Orders (Aug)
Japan PPI (Sep)
Thailand Consumer Confidence (Sep)
Malaysia Industrial Production (Aug)
United Kingdom monthly GDP, incl. Manufacturing, Services
and Construction Output (Aug)
United Kingdom Balance of Trade (Aug)
Germany Current Account (Aug)
India Industrial Production (Aug)
United States CPI (Sep)
United States Initial Jobless Claims

Friday 13 Oct
Thailand Market Holiday
South Korea Unemployment Rate (Sep)
Singapore GDP (Q3, adv)
China (Mainland) CPI, PPI (Sep)
China (Mainland) Trade (Sep)
India WPI (Sep)
France Inflation (Sep, final)
Eurozone Industrial Production (Aug)
India Trade (Sep)
United States Import and Export Prices (Sep)
United States UoM Sentiment (Oct, prelim)