Originally published by Rivkin Securities
Friday night’s trading session in overseas markets was relatively uneventful. While European markets were down (DAX down 0.73% and FTSE down 0.51%) the US indices closed slightly higher. The Dow Jones closed up 0.29% and the S&P 500 finished up 0.15% although in both cases there was a reasonably sharp drop in the 10 minutes before the close.
Today the Australian Bureau of Statistics will release Building Approvals data for the month of May. Also, China will release its manufacturing PMI. This week will be a big week for data releases with the RBA making its monthly interest rate decision tomorrow. While interest rates are expected to remain unchanged, the minutes from the prior meeting revealed that the RBA is becoming more hawkish in its sentiment (‘Hawkish’ indicates that rates are expected to rise while ‘Dovish’ sentiment represents expectation of falling rates). Also, Australian retail sales data will be released and later in the week the US will release the minutes from the latest Fed meeting as well as US monthly employment data. The employment data will be looked at carefully as the prior month’s data was quite weak and missed expectations significantly. The market is looking for a bounce in the numbers while another weak number could potentially derail the Fed’s plans for hiking rates. On the other hand, with the unemployment rate at 4.3%, below the ‘natural rate’, the Fed may be willing to overlook any weakness that might show in the latest numbers.
The Australian dollar continues to trade strongly against the US dollar with the exchange rate currently at 0.769 which is the high since March. The Australian dollar strength is a little counter-intuitive with the US raising rates while the RBA hasn’t indicated any rate hikes in the near future. The strong dollar may discourage the RBA to becoming too hawkish for fear of further stoking the Australian dollar rally and potentially harming exports. Australia’s current trade balance very healthy, showing a large surplus in the past few months, partly as a result of high iron ore and coal prices but a stronger Australian dollar could negatively impact that.
ASX 200 futures are pointing to a higher open this morning.
Data releases:
- Australia Building Approvals 11:30am AEST
- China Caixin Manufacturing PMI 11:45pm AEST
- UK Manufacturing PMI 6:30pm AEST