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Category: Business, Economics and Finance / Markets / Currency

Finance week ahead: Business investment weak, markets jittery

Sunday, 22 May 2016 09:37:00 | Stephen Letts

A trader works at his terminal on the floor of the New York Stock Exchange in New York on October 15, 2014. (Reuters)

Despite fears that the Federal Reserve will resume pushing rates up as early as next month, jittery global markets struggled up on Friday giving a modestly positive lead to the week ahead.

On Wall Street the Dow Jones Index rose 0.4 per cent while the S&P500 was up 0.6 per cent.

With little in the way of market-moving data out this week, investors will be tuned in for more hints from Federal Reserve officials who will be peddling their thoughts, the most important of which will be chair Janet Yellen on Friday.

While there seems increased urgency in the Fed's message that "lift-off" may be resumed, particularly after the release of last week's fairly hawkish minutes from the Fed's rate setting committee, there is plenty of argument against it.

"Despite the significant 'talking up' of June as a live meeting, we think this was merely an effort by the Fed to regain control of the 'option' to hike if they felt the need," RBC strategist Tom Porcelli said.

Mr Porcelli said what has not changed much is the cost/benefit of a June hike.

"With the Brexit vote in the ensuing week and polls in many cases still within the margin of error, and with a sizeable 'undecided' share to boot — the Fed cannot at this juncture risk a hike that is followed by a 'leave' vote," he said.

"They would effectively risk the mother of all policy mistakes for the negligible benefit of tightening just six weeks ahead of the next meeting [in July]."

For the punters, odds of a June hike by the Fed have jumped from around 4 per cent before the release of the Fed minutes to 30 per cent by the end of the week.

July is still a more popular tip with a 50 per cent expectation of a rate rise.

Business investment still weak, construction not much better

This week sees the start of the flow of numbers that will make up the March quarter economic growth — or GDP — number to be published on June 1.

The so-called partials being released — quarterly business investment and construction work — are two of the weaker categories to kick off the GDP number crunching.

Business investment (Thursday), AKA capex spending, both actual and intended, have been appalling for a number of quarters as the non-resources sector refuses to pick up the baton from the miners and drillers who have comprehensively hit the wall.

UBS economist Scott Haslem said capex intentions should improve from current "recessionary" levels.

Capital Economics' Paul Dales was almost upbeat too, predicting the first quarter could provide, "a little something for both the pessimists and the optimists".

Actual spending is forecast to drop another 2 per cent over the quarter, but more importantly spending intentions into the next financial year may have edged up from the very glum first survey three months ago.

Not great is about as good as can be expected

ANZ expects businesses to upgrade their estimate of overall new capital expenditure in 2016-17 from $82.6 billion to $91.5 billion, compared to the market consensus of $86.7 billion.

"This points to a fall of 13 per cent in nominal capex next financial year compared to an implied fall of 15 per cent in last quarter's survey, this follows an estimated 17 per cent decline in 2015-16," ANZ's Daniel Gradwell said.

In other words, capex spending is not so much looking up, as looking less down.

The key figure though will be non-mining investment with a forward estimate of a flat $56 billion being around a pass mark.

"We think that a result below $52 billion would be particularly disappointing," Mr Gradwell said.

"This would suggest that businesses' investment intentions have worsened over the past three months, despite the improvement in economic conditions."

Real construction activity is also out (Wednesday) and is expected to be down around 3 per cent, which will not help the next GDP number much either.

The RBA also has a bit of soapbox activity this week with governor Glenn Stevens (Tuesday) likely to keep up the commentary on low inflation and low wages growth, while assistant governor Guy Debelle will be in New York (Thursday) talking about the currency, or more particularly talking the Aussie dollar down a tad.

It is a chat that is often ignored in New York, although the recent selling of the little Aussie battler may mean it is more keenly listened to and acted upon this time around.

Australia

Monday 23/5/16
Tuesday 24/5/16RBA speechRBA governor Glenn Stevens out and about
Consumer confidenceANZ weekly survey; impact of interest rates and election a key
Wednesday 25/5/16Construction workQ1: Should be better than previous 3.6pc fall. Residential solid, engineering weak
Investor daysBoral, Suncorp and Worley Parsons provide updates on their plans for the future
Thursday 26/5/16Capital expenditureQ1: Has been a drag on growth, forward estimates for work extremely weak as well
RBA speechRBA assistant governor Guy Debelle out and about

Overseas

Monday 23/5/16JP: TradeApr: Both imports and exports falling, not good
Tuesday 24/5/16US, EU, JP: Manufacturing PMIMay: Europe the pick of a weakish bunch
Wednesday 25/5/16CA: BoC decisionBank of Canada expected to cut rates to 0.25pc
Thursday 26/5/16

US: House prices

US: Durable goods

US: Home sales

Mar: Case Shiller series up almost 6pc YoY

Apr:  Up around 1pc

Apr: Figures on both new and pending sales

Friday 27/5/16

US: Fed speech

US: GDP

JP: Inflation

Fed chair Janet Yellen out and about

Q1: 2nd estimate may have slipped to 0.6pc YoY

Apr: Will it crawl out of deflation?

AustraliaPlus


 

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