ICAP WEEKLY OUTLOOK

If you look at the run of consensus forecasts this week, it’s possible it’ll be another shocker for risk trades. I don’t say that because the economic backdrop will have changed at all. The recovery is well underway and in many cases accelerating. Recent European data show this, as do Chinese trade data released on Saturday. Exports surged 44% over the year to June - well above the median forecast of 38%.

It’s just that much of the data this week probably won’t show an acceleration. In fact it’s all pretty much set to slow and as we’ve seen, no matter how good the data actually is when it ‘slows’, people become afraid. Now as previously discussed, we know this stems from the habit some have of using ‘slow’ and double-dip interchangeably. Forgetting that in most cases when the data ‘slows’, it’s still showing expansion. Or take the US payrolls numbers. Private sector jobs are on the rise, albeit modestly so far, yet this somehow shows the US heading for recession.

With that in mind I’m especially nervous about US retail sales on Wednesday and Chinese GDP on Thursday. US retail spending has held up quite well so far and since October last year, average monthly growth has been around 0.7% - or almost twice the historical average. The problem is that the market is looking for a fall of about 0.3% for June. I hate to think what the market reaction could be if it’s realised (or worse) given the reaction to the ISM survey. Even so, sales for the June quarter will be quite reasonable at 1.2% (or there abouts) which should mean consumers have made another solid contribution to GDP growth – as they have already been doing.

Chinese GDP will obviously be interesting to watch given heightened market anxiety. Forecasts are that GDP will slow to 10.5% in Q2 from 11.9% in Q1. We all know the news flow that will be associated with such an outcome – even though growth will, by any measure, be robust.

I suspect the only moderating influence might be and (I only say might be), the run of US earnings reports we get this week. Maybe Paul the psychic octopus can help out. Alcoa reports tomorrow morning after the close and we get a run other companies like YUM and Texas Industries Tuesday/Wednesday, before JP Morgan report on Thursday night (prior to market open) and Bank of America on Friday (also before the market opens). Now I’m not an equity analyst, so earnings and associated things are outside my area of expertise. But I’m kind of hoping that company guidance has been on the softer side and that maybe we’ll get a few positive surprises. If we don’t, then it could be a very nasty week for risk indeed.

In terms of the Aussie flow this week, we kick off with new home loans today at 1130. Regular readers already know my view. I think the lending figures are worth watching, but not panicking over – they call for a slower more cautious pace of tightening, but not the elimination of the tightening cycle. New loans have fallen in every month since June 2009 – by a cumulative 30%. If it wasn’t for the fact that interest rates remain historically attractive, that house prices are rising modestly and that jobs growth has been so strong, this would give cause for alarm. But the fact is that jobs growth has been strong and rates remain attractive. This suggests to me that it’s the pace of rate hikes rather than the level which is keeping people at the periphery. Well that, supply issues and affordability problems in some areas.

Other than home loan data, NAB release their business survey on Tuesday (1130) and Westpac their consumer survey on Wednesday (1030). Now both business and consumer surveys have been hit by the run of pessimistic news flow regarding, firstly Greece, then austerity in Europe and then fears over double dip in the US. We can’t expect major advances in confidence when, wherever they look, people are bombarded with doom and gloom. Nothing like a healthy does of reality though and the strong jobs numbers we saw may help to lift consumer sentiment slightly.

Across the Tasman, the Kiwi’s get an update on retail spending (0845 Wednesday) with the market looking for a rise of 0.5% (I’m not different at +0.6%). CPI on Friday will be closely watched (+0.5% expected with me at 0.7%).

That’s about the lot, have a great week…