Capex & Credit at the forefront
Sunday, 24 August 2008 6:10pm
This Week's Market Movers (25 - 29 Aug 2008)
Last week's economic releases continued the common theme of global weakness and elevated inflation. Financial market activity were once again volatile as thin trading volumes exaggerated downward moves in equity markets on the back of continuing negative news on US money and credit markets.
This week marks the end of winter in the southern hemisphere, the end of the summer vacation in the north and the last trading week of August. Macroeconomic data scheduled for release over the next five days are not expected to deviate much from the ongoing theme of slowing global growth and still high inflation.
Australia:
Australian actual and planned investment spending is the key release for the domestic market this week with the release of the Australian Bureau of Statistics' Private New Capital Expenditure and Expected Expenditure for June 2008.
Actual capital expenditure declined by 2.5 per cent in the March quarter, partially reversing the 7.3 per cent rise in the previous quarter. Actual capital investment in the first quarter was dragged down by a 6.4 per cent drop in other selected industries - wholesale, retail, construction, transport & storage, property & business services, finance & insurance - and a 0.6 per cent fall in manufacturing. Higher commodity prices continue to boost investment spending in mining, rising by 4 percent in the March quarter after a strong 7.2 percent increase in the previous three month period.
Capital expenditure plans for 2007/08 rose to A$87 billion in the March quarter, up 11.1 percent from the 2006/07 estimate. Planned investment for the mining industry surged by 23.9 percent and other selected industries by 7.7 per cent but estimates for manufacturing fell by 0.6 per cent.
Total actual new capital expenditure is expected to increase by 2 per cent in the June quarter, driven primarily by continuing gains in the mining industry.
Private sector credit figures for July are also due for release this week and are expected to increase by 0.5 per cent over the month for an 11 per cent gain for the year. This follows growth of 0.4 per cent in the month of June and 11.7 percent for the year.
US:
Data out of the US this week are not expected to offer great insights on whether the economy has reached its turning point - they will merely confirm the ongoing trend in the current market environment.
This week, markets will receive updates on the US housing market, durable goods orders, the personal consumption deflator and minutes from 5 August Federal Open Markets Committee (FOMC) meeting.
Expectations are for some improvement in these indicators but inflation would remain high. These should be reflected in the FOMC August meeting minutes.
Japan:
Inflation and employment figures will be the focus of attention for Japanese financial markets this week.
Headline Tokyo CPI is expected to increase by 1.6 per cent in the year to August with the core Tokyo rate forecast to rise by 0.3 percent. Nationwide headline CPI inflation is expected to rise to 2.2 percent in July, up from 2 percent in the previous month. The national core rate (ex food and energy) will remain steady at an annual rate of 0.1 percent, indicating that higher energy and food prices have been the main driving factors pushing up the headline rate.
Meanwhile, the Japanese labour market should remain fairly strong given indications from recent surveys showing labour shortages and that firms are still hiring. The jobless rate is expected to remain at 4.1 per cent in July.
Other data out of Japan this week are updates on industrial production, retail sales, and housing starts. Although markets expect a slight improvement in these indicators, the broader trend remains one of weakness.
Europe:
Eurozone financial markets will find interest in the flash estimate of Eurozone inflation and the German Ifo index this week, particularly given last week's mixed readings from the German ZEW index, better-than-expected results in the Eurozone purchasing managers indices (PMI) - manufacturing and services - and the disappointing German PMI report.
Financial markets expect the German Ifo business climate index to continue to decline in August given the negative lead from the German PMI. However, lower petrol prices and the slight weakening in the euro should cushion the decline.
Meanwhile, the fall in crude oil prices in August is expected to bring Eurozone CPI down slightly to 4 percent from 4.1 percent in the year to July.
Benjamin Ong
