China’s outlook and speculation around US interest rates will continue to drive market sentiment this week, although the line-up of local data releases has just enough weight to move asset prices at the margins.
Foremost of these is Friday’s retail trade figures for August, which should provide a snapshot of consumer sentiment.
Westpac expected an improvement in retail sales data after a weaker than expected result in July, dragged down by a 1.9 per cent decline in household goods.
“Some of this . . . related to budget measures encouraging small business investment spending ahead of the end of financial year,” the bank said in a note at the weekend.
“Food retail was also flat in the month, possibly due to aggressive pricing as much as soft demand.”
The latest Bloomberg survey of economists puts monthly growth at 0.4 per cent in August, after a 0.1 per cent contraction in July.
The S&P/ASX 200 SPI contract has the local sharemarket opening slightly lower on Monday after a mixed finish to a choppy week on Wall Street.
The Dow Jones Industrial Average closed up 113.35 points, or 0.7 per cent, at 16,314.67 on Friday. However, the S&P 500 fell 0.9 points, or 0.05 per cent, to 1931.34, while the Nasdaq Composite lost 47.98 points, or 1.01 per cent, to 4686.50.
European shares rallied after testing 2015 lows earlier in the week on concerns about China. Still, that surge was not enough to prevent a decline on the week.
The pan-European FTSEurofirst 300 Index closed up 2.78 per cent, while the eurozone’s blue chip Euro STOXX 50 Index finished 3.11 per cent higher. For the week, the FTSEurofirst fell. 1.6 per cent and the Euro STOXX 50 slid 1.4 per cent.
The Australian equity market had a similarly choppy week. Index declines on three of the five days left the main S&P/ASX 200 down 2.5 per cent for the week.
Resources stocks were the big losers, dragged down by continued softness in many commodity prices and BHP Billiton’s announcement that it would slash investment.
Growing signs that the residential property boom in Sydney and Melbourne was cooling also took their toll on equities with exposure to construction.
On Wednesday, market watchers will be alert to the Reserve Bank of Australia’s monthly credit figures, which provide a breakdown of growth in housing, consumer and business loans.
Of most interest will be the growth in lending to buy-to-let and buy-to-sell residential property investors. This slowed from 1 per cent to 0.6 per cent month-on-month in July after the regulatory crackdown on riskier market segments.
National Australia Bank notes weak growth in loan approvals to owner-occupiers, suggesting a broader slowdown in mortgage demand.
“After aggregate 0.6 per cent growth in July, when we saw a noticeable deceleration in investor credit growth, loan approvals in July for owner-occupiers have also been very soft, and investor loan approvals have been essentially flat for two months, [with the] softness pointing to some further incremental easing in housing credit growth,” NAB wrote.
NAB expects 0.5 per cent aggregate credit demand growth in August, in line with the average of economists surveyed by Bloomberg.
Wednesday also brings the building approvals survey, which is expected to show a 2 per cent month-on-month decline in August, the Bloomberg survey shows, compared with 4.2 per cent growth in July.
The year-on-year rate should ease to 7.4 per cent in August, compared with 13.4 per cent in July.
“Residential approvals remain near a record high at 232,000, and renovations recently rebounded,” UBS economist Scott Haslem wrote at the weekend.
“So even as commencements ease to 200,000 in 2016, dwelling investment should lift in coming quarters, but flatten in the second half of 2016.”
Internationally, market sentiment had been driven largely by increased speculation that the US Federal Reserve would leave interest rates on hold for the rest of the year, along with Chinese demand for commodities.
US Fed chairwoman Janet Yellen has since reassured markets that she favours a 2015 start to the first tightening cycle in almost a decade, which should bring clarity to the policy outlook.
No fewer than six Federal Open Market Committee members, including Ms Yellen, are scheduled to speak during the week, providing Fed watchers with plenty of signals on where the US central bank is headed on interest rates.
“At first sight, any tightening in US monetary policy would be bad news for global asset markets,” Capital Economics economist Julian Jessop wrote at the weekend.
“However, this takes no account of the context in which the Fed would be raising rates.
“For a start, the Fed’s failure to raise rates at the September [Federal] Open Market Committee meeting, rather than being reassuring, simply reinforced investors’ concerns about the health of the world economy.
“The corollary is that a December rate hike would presumably be a welcome vote of confidence,” he wrote.
The US data flow this week includes the September employment report, which is expected to show the jobless rate unchanged at 5.1 per cent, and the ISM Manufacturing Index, which is expected to be steady at 51 points.
Elsewhere, China begins a week-long national holiday on Thursday, but not before the release of the final reading of the Caixin Purchasing Managers’ Index.
The Canberra Times - Mark Mulligan, Markets and economy reporter
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