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Savanth Sebastian – Economist – CommSec

Reserve Bank dominates the domestic agenda
·       The domestic economic data dries up over the coming week. In Australia the Reserve Bank will dominate the calendar and hopefully provide us with more insight on interest rates with the release of the Board minutes. In the US the focus will be on the housing sector. And investors and traders will focus on the “flash” manufacturing data released across the globe (Friday).
·       In Australia, the week kicks off on Tuesday, when the minutes of the July 5 Reserve Bank Board meeting are released – the meeting that decided to leave rates on hold for another month. Investors will be hoping to get a better sense of central bank thinking from the Board minutes – particularly when it comes to the near-term economic and interest rate outlook. The statement following the ‘no change’ decision in early July, highlighted the level of uncertainty regarding the Euro zone and the last paragraph took on a slight easing bias – opening the door for another rate cut. We expect the minutes to focus on domestic outlook for inflation and growth and the stronger Australian dollar and potentially even open the door further when it comes to another rate cut in August. For the record we expect another 25 basis point rate cut next month.
·       The weekly consumer sentiment reading will be released on the same day (on Tuesday). Confidence levels have fallen for the past three weeks, down by 3.1 per cent. It is pretty clear that the uncertainty surrounding the outcome of the Federal election dampened confidence. However, confidence levels should now improve given the certainty of a majority government.
·       On Thursday the NAB quarterly business survey is released alongside the June detailed labour market statistics from the ABS. The industry make-up of employment was released last month, but Thursday’s data will have regional and demographic detail on the job market.
Overseas: US housing sector in focus; “Flash” manufacturing gauges
·       The flow of Chinese economic data has dried up, so the US takes centre stage in the coming week. And the focus will predominately be on the housing sector. However investors will also keep a close eye on the European Central Bank meeting on Thursday – where there a range of expectations on the degree of stimulus. In addition the “flash” manufacturing gauges from across the globe are released on Friday.
·       The week begins on Monday when the National Association of Home Builders (NAHB) index is released.
·       On Tuesday, two key indicators on the housing sector will be released – housing starts and building permits. US annualised housing starts are tipped to lift from a 1.16 million annual rate to 1.17 million in June. New building permits are expected to have risen by 1.2 per cent in the month.
·       On Wednesday the usual US weekly data on home purchase and refinancing is issued.
·       On Thursday, the Federal Housing Finance Agency issues its May data on home prices alongside the weekly data on new claims for unemployment insurance, the Philadelphia Fed business index, existing home sales and the leading index for June. Economists tip a near 1.5 per cent fall in existing home sales to a 5.45 million annual rate in June after a 1.8 per cent gain in May. Some believe a housing shortage exists with only 4.7 months of stock on hand, below the 6-month figure regarded as balanced between demand and supply. Home prices are currently 5.9 per cent higher over the year.
·       On Friday, the Markit “flash” readings on manufacturing activity are released in the US as well as Europe and Japan.
Sharemarket, interest rates, currencies & commodities
·       The US earnings season cranks up a notch in the coming week. And while hopes aren’t high for a good season of profit results, the contrarian view may prove more rewarding. Concerns for analysts and investors centre on the higher US dollar over the past year, low oil prices and the resulting hit to corporate profits, especially in the energy sector
·       According to S&P Global Market Intelligence, earnings amongst S&P 500 companies are expected to slump by 5 per cent from a year earlier – marking the fourth straight quarterly decline.
·       Interestingly the weakness will be dominated by the energy sector, where forecasts anticipate an almost 80 per cent slid in second quarter earnings compared with a year ago. In fact excluding the energy sector, S&P 500 earnings are expected to fall by a more modest 0.4 per cent.
·       The financial sector, is expected to be under pressure from compressed margins and higher costs. The S&P financial sector earnings are forecast to have fallen by 7.6 per cent in the second quarter.
·       On Monday, 31 stocks are expected to report including Bank of America, Hasbro, and Netflix. On Tuesday there are another 70 companies listed including Goldman Sachs, Johnson & Johnson, Microsoft and Yahoo!. On Wednesday earnings results are expected from 85 companies including American Express, Ebay, Halliburton, Mattel, and Morgan Stanley. On Thursday 120 companies should issue profit results including D R Horton, Domino’s Pizza, General Motors, At&t, Unilever and Visa. And on Friday there are 33 companies listed including General Electric, Honeywell, and Moody’s.

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