SCOREBOARD: Greek correction?

A vote in Greece could be the catalyst for market movements, along with a spate of offshore data.

Europe is still the key focus for the market obviously and, within that, Greece – the saga never ends. At least the down days are much smaller than what we’ve seen in the past, although the rally in Aussie futures has been remarkable. I had been thinking late last week that our futures (bills, 3s, 10s) were ready for a rally at some point over the next week or two, but now, having seen that all on Friday, and on the RBA’s minutes, I’m left looking for the next opportunity to go short. I’m very surprised by the extent of the rally to be honest. The RBA was not dovish by any measure and if anything, the market should be more confident that the bank will not cut again in the near-term (with what we know now). Commercial bank moves complicate the picture a little bit, sure, but at this stage, moves have been modest. I’m not sure how this will play out, but my initial thoughts are that banks won’t want to lift margins too much. I mean, to do so would be the equivalent of taking out a full-spread advert in the WSJ or something – "Wanted. New competitors!” So there is a limit, I would have thought.

If the Greek vote gets through (expected in the next couple of hours, I believe) that may be the catalyst for a corrective sell-off, partial retracement or whatever. So watch out for the headlines there.

Otherwise I’m not sure that there will be much more of a catalyst this week. The Aussie data probably won’t be fantastic, it’s fair to say. A lot of it is to do with confidence and we know that confidence here is worse than in Germany – and they’re in Europe! So NAB’s business survey is out Tuesday (1130 AEDT and for January). Confidence is currently about half the average, although we might see some pick-up given the equity market got a decent boost and there were signs of a stabilisation in Europe. Offsetting that perhaps, and something I think will also weigh on Westpac’s consumer confidence (Wednesday 1030 AEDT) has been the domestic news flow. News stories of mass job shedding were frequent in the lead up to the RBA’s meeting and this will obviously weigh on confidence.

We’ll find out just how many jobs were lost on Thursday. The ABS release labour force data and following a 29,000 fall in employment in December, forecasters (me included) expect a 10,000 rise in January employment. The unemployment rate is expected to rise to 5.3 per cent from 5.2 per cent (me at 5.2 per cent). Other than that, it’s worth watching out for ABS home loans data today (1130 AEDT). The data is for December and the market looks for a 1.8 per cent rise.

Loans data has shown a very rapid recovery since last year’s floods and the fundamentals are very supportive of further strong loans growth. Finally, ABS car sales are due on Wednesday at 1130 AEDT and, of course, there is a plethora of earnings reports out (CBA, FMG, WES).

Across the Tasman we see NZ quotable value house prices (Tuesday 0845 AEDT and for December), NZ Q4 retail sales Wednesday and then on Thursday, we get the NZ business PMI (for January).

Looking abroad, there is a good spread of data for the US. Retail sales on Tuesday are probably the most important (accompanied by business inventories). What we know is that there has been a pretty good pick-up in US consumer spending. This is supported by nearly all the indicators – retail, chain store sales, consumer credit data. The consensus is that sales will rise a further 0.8 per cent with core sales expected at 0.5 per cent. Other than that we get the Empire manufacturing survey (February), industrial production (January) and the FOMC minutes Wednesday. Then on Thursday, we have producer prices (January), housing starts (January), delinquencies and foreclosures (December quarter) and the Philly Fed (February) index. Finally, US CPI (January) is due Friday.

Other than Greece and whatever other shenanigans the Europeans can come up with, the data will be concerned with eurozone industrial production (January) and German ZEW (February) on Tuesday and then on Wednesday the EC Q4 GDP and BoE inflation reports. Friday sees EC construction output and balance of payments.

Adam Carr is senior economist at ICAP Australia. See Business Spectator's glossary for definitions of technical terms used in SCOREBOARD articles.

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