The US Federal Reserve meeting was the key event last week, as the central bank answered a number of important questions about the orderly wind-back of its post-COVID policy stimulus.
Fed Chairman Jerome Powell signalled the bank would start tapering its asset purchases starting in November, which would last until the middle of 2022.
On the interest rates front, the ‘dot plot’ signalled that US interest rates would be raised sometime next year, with the first hike being 0.25%.
The Fed’s ‘dot plot’ builds out a median view on the timeline for the next rate hike, by ‘plotting’ the individual expectations of each of the bank’s 18 committee members
Powell also said there was little direct exposure to debt in the US financial system from the Evergrande fallout, saying the issue is “particular to China”.
Analysts at Morgan Stanley however said the odds of a 20% correction in the S&P 500 index are increasing as the market transitions to the next stage of its cycle.
The analysts said they continue to recommend more defensively oriented quality (healthcare and staples).
This might not be so far-fetched given the world is seemingly in the middle of a third wave of the pandemic, as the graph below from the WHO clearly shows:
In Australia meanwhile, a speech by assistant RBA governor Michele Bullock sounded a warning on Australia’s high levels of household debt in the wake of the post-COVID surge in house prices.
She said the central bank is “continually assessing” possible regulatory measures to address financial stability risks, as housing prices have surged by 19.9% in Australian capital cities over the last 12 months.
Aussies however are still optimistic about the outlook for the economy, with the ANZ-Roy Morgan Consumer Confidence released on Tuesday showing it was virtually unchanged at 103.3.
Economic calendar for this week
Australia
MONDAY: Retails sales for August will be released. The consensus is for a drop of 2.4%.
WEDNESDAY:
Building approvals.
Housing credit. The forecast was an increase of 0.6%.
FRIDAY: Commodity prices. This measures the change in the selling price of exported commodities, which accounts for over half of Australia’s export income.
International calendar
US (US time)
US Federal Reserve FOMC members will make announcements throughout the week.
TUESDAY:
House price index. Like Australia, the US is also struggling with a property bubble with house prices up 19% nationally.
US consumer confidence. The consensus is for an increase in confidence this month.
WEDNESDAY: US Fed Chairman will give a speech.
THURSDAY: Initial job claims for the week will be released.
FRIDAY: The US PCE Price Index will be released. The Core Personal Consumption Expenditure (PCE) Price Index measures the changes in the price of goods and services purchased by consumers for the purpose of consumption, excluding food and energy.
Europe (European time)
WEDNESDAY:
European Central Bank President Christine Lagarde will give a speech.
The Eurozone will also be releasing Consumer Confidence and Business Climate surveys.
THURSDAY: Eurozone unemployment rate will be released. Economists expect the number to be 7.5%, down from 7.6% the previous month.
China
WEDNESDAY: China’s Manufacturing PMI (Purchasing Managers’ Index) is released.
Corporate calendar for this week
On the ASX, annual reports will continue to be released this week as we have seen over the past week.
And here are stocks that will make their IPO debut on the ASX this week:
MONDAY:
Pacific Edge Limited (ASX:PEB), a developer of specialist cancer diagnostics tools.
TUESDAY:
Dalaroo Metals Ltd (ASX:DAL), a mineral explorer that raised $5m at 20c.
Koonenberry Gold Limited (ASX:KNB), a gold explorer that raised $10m at 20c.
Li-S Energy Limited (ASX:LIS), a manufacturer of lithium-sulphur battery technology that raised $34m at 85c.
WEDNESDAY:
Touch Ventures Limited (ASX:TVL), an investment company that raised $100m at 40c.
THURSDAY:
Activeport Group Ltd (ASX:ATV), a telco software provider that raised $15m at 20c.
Mitre Mining Corporation (ASX:MMC), an explorer that raised $5m at 20c.
FRIDAY:
C29 Metals Limited (ASX:C29), a metals explorer that raised $5m at 20c.
West Cobar Metals Limited (ASX:WC1), a mineral explorer that raised $5.5m at 20c.
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