UNIT University Network for Investing and Trading UniMelb

Before The Bell 01/09/2019

By: Dom Holden


Equities

The week ahead offers some key releases in the US, with employment and manufacturing figures for August set to be announced by Thursday. This will be first employment announcement since it was revealed that the US created 500,000 fewer jobs than previously reported by the government, and thus presents a critical test of President Trump’s tax cuts and higher spending.

Closer to home, the August corporate reporting season is drawing to a close. However, a slew of earnings reports including Argo Global Listed Infrastructure (ASX:ALI) and Myer Holdings (ASX:MYR) are promising to keep the markets interesting over the coming week. With the impact of the US-China trade war continuing to ripple out into the rest of the world, the Australian market is highly vulnerable to movements in either direction.

Australian Economy

All eyes will be pointed towards the RBA this Tuesday ahead of the monthly cash rate decision. With rates sitting at a record low of 1.00% following a reduction in July, investors expect the central bank to hold rates steady with the market pricing in an 87% chance of a hold. Polls of economists conducted by Reuters predicts another two cuts in the next year, bringing rates to 0.50% by mid-2020. This brings concerns of the nation approaching the zero-lower bound of interest rates, severely limiting the effectiveness of monetary policy in response to economic shocks.

Commodities

With Hurricane Dorian currently threatening the US Gulf of Mexico, oil and gas producers BP, BHP and Chevron have evacuated staff from their plants. While producers state that production is predicted to be unaffected at this point, some experts predict the storm may cross the Florida peninsula. This would pose a significant supply side threat to oil markets, with 16% of US crude oil produced in the area.

Bonds

US Treasury bonds are signalling worrying signs for investors, with short term yields significantly exceeding 10-Year yields of 1.50%. This inversion of the yield curve traditionally operates as a leading indicator for a recession. Although this indicator has not been as effective in predicting Australian downturns, it does posit consideration for a potential recession in the near future.

Forex

The Australian dollar is set to be impacted by the RBA cash rate decision and release of August GDP data on Tuesday and Wednesday respectively. Additionally, expect any positive news from US-China relations to generate some support for the AUD.

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