Macro Micro: No rest for the wicked

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Evan Lucas

Three weeks to Christmas – However those three weeks are a long, long way away when you look at what is due to be released over the next 11 days.

Starting from today the next 11 days of the year are probably the busiest 11-day period of 2017

Here is why:

Year-end central bank meetings (specifically the Fed), employment releases, terms of trade data, as well as the start of Q4 data (October) from construction, retails sales, fixed asset investment, industrial production and PMIs.

And don’t forget that OPEC is meeting in Vienna this week to ‘finalise’ production cuts while the US is now inches away from signing the new tax bill into law having seen it pass the Senate. Plus, the odd geo-political tension is flying around too– Trump v Flynn v FBI v the People and North Korea reminding everyone where it is with another – ‘look at me’.

No – there is no rest for the wicked before everyone’s’ much deserved festive break so buckle up.

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The week ahead:

Tuesday

RBA – Final meeting of 2017 – and radio silence from Martin Place until the first Tuesday of February 2018:

Certainty: No movement in the cash rate

Therefore, all about the statement:

  1. Wages: The release of the Q3 wage price index has allowed the Bank to place a massive ‘emphasis’ on wages increase in 2018 – to a point of it being almost as an economic imperative. If, as expected, the statement does puts wage growth front and centre as reasoning for Australian economic environment being not conducive for rate movements going forward it creates an almost self-fulfilling cycle.
  2. Inflation – core inflation according to the SoMP not forecasted to cross into the target band for the next two years – strip out housing and core inflation looks even more perilous to a down side slide. If this is to be countered – it needs to come from consumption – which is where wages come in. and the cycle continues: RBA has and will likely highlight this over and over.
  3. Growth – Bright spot! Net-exports, government spending and now private spending are expanding looking at the release from the CAPEX data – Puts Australia are on track to see GDP reach 3% year-on-year to finish 2017. GDP may give the bank a focus point for leaving rates on hold and a possible reason to increase rates in the medium-term future; ‘if the economy increases 2018.’

Tuesday also sees Australian retail data for October – likely to be stodgy, the market releases from the discretionary sector told the market this in November. China is also due to release its SME Caixin manufacturing PMI data – reactions from the market for both should be mild compared to the RBA.

Thursday

Australian trade balance for October – terms of trade have been solid in 2017. October, however was the first month in six to see China backed off its higher than forecasted binge on bulk commodity. May have a flow through effect on Growth – materials are clearly in play this week.

Friday

Chinese Trade Balance:

November activity versus October activity at Chinese ports was likely chalk and cheese this year – having seen October down on the People’s National Congress – which would suggest Friday’s release could be a positive read.

However fundamentally Europe has been showing strong signs of growth which is a more long-term upside risk. Being China’s second largest export market, forecasts for a solid snapback in November are justified Chinese exports are forecasted to grow by 8%. The Australian-centric view of this is demand for Chinese goods means demand for Australian bulk commodities – again materials are clearly in play

Non-farm Payrolls (NFP) Last one for 2017:

Last US employment read for 2017 – the penultimate read of the Yellen era. She should be proud she has basically overseen almost ‘full employment’. However, realistically one should focus on the new Powell-era and the comments he made last week about ‘full employment’. His comments suggest the market should be concentrating on the average hourly earnings as the core data coming from the NFPs not the head line read. No one is arguing that US employment isn’t booming the issue is wage growth is dismal. Powell appears to be looking for reasons to move the Fed from ‘gradual rate rises’ to glacial rate rise. The market has believed this for years – see dot plots.

Have a good week – FOMC meeting here we come.

 

Evan Lucas is an expert guest contributor to Fairmont Equities.

Evan is founder of The Lucas Review. Prior to that he was Market Strategist at IG. He is well known as an expert commentator in finance media such as Sky News Business, ABC1, the Australian Financial Review, CNBC, and Reuters.

Disclaimer: The information in this article is general advice only. Read our full disclaimer HERE.

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