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Local market looks for signs of confidence

Local investors will be looking to economic data out this week for signs business confidence is improving, as nervousness over the US government shutdown continues to rule international markets.
By · 7 Oct 2013
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7 Oct 2013
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Local investors will be looking to economic data out this week for signs business confidence is improving, as nervousness over the US government shutdown continues to rule international markets.

US Treasuries dropped for the first time in four weeks last week on bets that lawmakers would end the partial shutdown of the US government in time to reach an accord on extending the federal debt limit.

The Australian benchmark S&P/ASX 200 Index shed 26.9 points on Friday to close at 5208 points, recording a 1.9 per cent loss for the week.

While analysts said investors were keen to see a resolution to the US deadlock, more important were improvements to local business conditions and employment figures.

"The Reserve Bank has been hoping there would be improvement in confidence after change of government," ANZ economist Ivan Colhoun said. "Data out this week will hopefully show that conditions have improved, particularly in manufacturing and retail, where they have been struggling.

"If they don't improve, we've been in this position for a while now. Whereas if they improve, policy is working, and things are getting better."

National Australia Bank business confidence and conditions surveys will be released on Tuesday, and the Westpac consumer confidence survey is due out on Wednesday. Employment data will be released on Thursday.

Mr Colhoun said the Australian sharemarket had so far been immune to the US fiscal crisis, but that would change if fighting between Republicans and Democrats continued past the October 17 debt ceiling deadline.

"If the shutdown generates into the deadline being missed and the US having any sort of default, the impact on the market will be much larger. And that can affect confidence," he said.

Kathy Lien, analyst at BK Asset Management, said the Australian dollar was likely to strengthen this week on further US dollar weakness. "The Australian dollar looks poised for more gains on a technical basis, but that will depend on developments in Washington," she said.
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Frequently Asked Questions about this Article…

Local investors are watching upcoming economic data for signs that business confidence is improving. Analysts say data on manufacturing, retail and employment will show whether policy is working and whether confidence has recovered after the change of government — developments the Reserve Bank has been hoping to see.

The S&P/ASX 200 closed at 5,208 points after shedding 26.9 points on Friday, recording a 1.9% loss for the week. For everyday investors this indicates a short-term pullback in local markets, driven by uncertainty around international events and scrutiny of local economic conditions.

Key releases to watch are the National Australia Bank business confidence and conditions surveys (due Tuesday), the Westpac consumer confidence survey (due Wednesday) and employment data (due Thursday). These reports are highlighted by analysts as important gauges of local business conditions and labour market strength.

The article notes nervousness over the US government shutdown is influencing international markets. While the Australian sharemarket had been largely immune so far, ANZ economist Ivan Colhoun warned that if the shutdown drags past the October 17 debt ceiling deadline and leads to a US default, the market impact would be much larger and could dent investor confidence.

US Treasuries dropped for the first time in four weeks as markets bet lawmakers might end the partial shutdown and reach an accord on the federal debt limit. Movements in US Treasuries matter because they reflect global risk sentiment and can influence international markets, including Australia.

Kathy Lien of BK Asset Management said the Australian dollar looked likely to strengthen this week on further US dollar weakness. She noted the AUD appears poised for technical gains, but that any progress will depend on developments in Washington.

ANZ economist Ivan Colhoun highlighted manufacturing and retail because those sectors have been struggling and improvements there would be a clear sign that business conditions and confidence are recovering — evidence that policy is having a positive effect.

The article suggests short-term falls reflect a mix of international uncertainty (such as the US shutdown) and local economic data expectations. Investors should monitor upcoming business confidence and employment reports, since stronger local data would signal improving conditions and could help restore confidence.