Scoreboard: Mixed messages

Friday’s price action was pretty boring, with nothing of note occurring. Well, not nothing I guess. Commodities took another hit, with copper the key underperformer falling 2.5 per cent, while crude was down 0.8 per cent ($104.7) and gold fell about $7. No doubt JP Morgan’s decision to exit physical commodities trading (announced Friday night) is hurting sentiment here, as is the wider regulatory crackdown in the sector. But increasing regulation is the new normal.

Apart from that though there was nothing – the major US stocks indices were effectively flat, while moves in forex were subdued as well. The Australian dollar was unchanged broadly at 0.926, the euro was at 1.3287, while the yen is at 98.05.

I doubt that’ll be the case this week though as the tempo picks up quite a bit. That’s especially for the US, where we get updates on the big three issues this week: growth, jobs and the Fed. So it could be wild after a period of comparative calm.

Now, at the moment the consensus is that jobs surged another 187,000 in July, while the unemployment rate is expected to fall to 7.5 per cent. By itself this would ordinarily keep talk of a QE tapering alive. However, the June quarter growth figures are expected to be weak.

Most economists – well, the consensus of economists – think that GDP only rose 1 per cent in the quarter, which is soft. How soft will depend on the breakdown. I mean, if that result is driven by net exports and inventories, then it can’t really be the case that growth is weak as such. But the headline will be the focus, and if we do get 1 per cent, then that’s going to be it for QE tapering talk for at least three months.

The Fed itself isn’t expected to do anything at its meeting on Thursday morning, but if the committee is confident that the GDP numbers will be soft, and I suspect it is – even the International Monetary Fund is trumpeting a weak June quarter of growth – then I actually think we will see a more dovish Fed.

Recall that some members – at least one in James Bullard, and he speaks on Friday night – are concerned that the Fed isn’t highlighting soft inflation figures enough. He’s going into this meeting with a lot more ammunition, notwithstanding the jobs figures. So the storyline for the week will likely be a weakening economy, decent jobs and a Fed that doesn’t know what it’s doing. How the market reacts to all that is anyone’s guess. Good-good news; good-bad news; maybe even bad-bad news. Anything could happen.

In Australia, by way of contrast, we don’t have anything anywhere near as hard hitting, though we do get some data that’ll update us on the housing market. The all-important housing market. building approvals are first up on Tuesday, and early signs point to a decent pick-up in approvals. There is certainly the demand for more housing, and auction clearance rates have surged to reflect this – in Sydney to the highest since 2001. Moreover we are seeing some signs of life regarding Sydney house prices and we get another update on that this week (Thursday) with RP data Riskmark’s house price series.

The grand sum signal of the data is that some signs of life are returning to the market, and great confidence is the only headwind here, not the price of money. I suspect if the Reserve Bank can just stop itself from cutting rates further and panicking, we would see a much more rapid lift in confidence. Other than the housing data we see trade prices at 1130 AEST and the RBA’s commodity price index.

Elsewhere abroad there isn’t too much – the key stuff will be German CPI, China’s manufacturing PMI on Thursday and the Bank of England and European Central Bank meetings Thursday night, with no changes expected here.

Hope you have a great week.

Adam Carr is a leading market economist.

Follow @AdamCarrEcon on Twitter.