Inflation will dominate thinking in global markets this week with consumer and producer price data for September being issued in the US and China and reminding investors of the so-called elephant in the room – rising cost pressures.
The US September jobs figures were much stronger than the headline figures suggested and there was also a sharp 0.6% rise in wages which got the talking heads chattering about wage rises and inflation in the wake of the data release on Friday.
The surge in energy costs (especially oil, gas, LNG and coal) continues to draw attention to high inflation hanging around longer than expected by central banks.
Supply chain snafus, hiccups, shipping shortages and the pandemic are also disrupting activity and adding to higher costs and boardroom unease.
The rise in energy costs remains a major factor for inflation, and will be a key topic as companies report third-quarter results in coming weeks.
Oil prices have surged more than 25% since late August, with Brent topping $US82 a barrel and US petrol prices are up 96% in the past year.
Though the Fed still believes inflation will fall, there’s a growing belief that it will be slower than previously thought because many of the problems – such as the shortage of computer chips, new car prices, rising energy costs – will be slower to return to normal.
This week the Consumer Price Index (CPI) for August will be out on Wednesday and the Producer Price Index (PPI) for the same month will be out on Thursday.
As well the minutes of the last Fed meeting will be out Wednesday as well and analysts and economists will be looking to see just what was said about the tapering of the bond buying program and the timing of interest rate movements.
The AMP’s Chief Economist Shane Oliver believes core CPI inflation will have risen 0.2% in September leaving annual inflation at a still high annual rate of 4%.
He said the producer price inflation is also likely to remain high around August’s 0.7% year on year rise and record annual rate of 8.3%.
Dr Oliver says headline retail sales for September are expected to have fallen slightly “but underlying measures are expected to show a modest gain.” Sales rose a headline rate of 0.7% in August (Australia’s fell 1.7%).
He says manufacturing conditions in the New York region (Friday) are expected to have fallen back slightly but remain robust. Small business optimism and labour market openings data will be released on Tuesday.
The September quarter earnings reporting season will start to get underway with the consensus being for 28% earnings growth on a year ago, Dr Oliver wrote in a weekend note (see separate story).
China reduces its August CPI and PPI on Thursday and while the latter is expected to have remained weak last month, the PPI would be up an annual 10% or more, which would be a record after the record 9.5% annual rate reported in August.
Dr Oliver reckons the PPI will come in around a rise of 10.6% because of soaring energy costs and shortages. He reckons the CPI could show a small rise to 0.9% (annual) in September which is syill too close to disinflationary levels to be comfortable. The CPI rose an annual 0.8% in August.
Chinese trade data for September is out on Wednesday and data the volume of coal, iron ore and LNG imports will be closely watched because of the shortage of energy and rolling blackouts.
In Australia the September jobs report will be released – Dr Oliver reckons the data on Thursday will show another 150,000 decline in employment as the full impact of the Victorian lockdown hits.
“However, as we saw in August a decline in participation is likely to keep unemployment subdued although we expect a modest rise to 4.8% and the bulk of the impact from the lockdowns will be in terms of hours worked. Of course, with reopening now commencing the jobs data will be a bit dated,” he wrote at the weekend.
Economists from Moody’s ratings agency see the jobless rate rising to 5% “reflecting a sharper hit to employment from extended large-scale closures across New South Wales and Victoria.”
Tomorrow sees the monthly NAB business conditions and confidence survey for September which is expected to show a modest improvement as is consumer confidence on Wednesday as a result of rising vaccination rates and reopening roadmaps.
The annual meeting and September quarterly reports start flowing this week.
Companies holding AGMs will include BHP, CSL, Aurizon, Treasury Wine Estates and the Commonwealth Bank.
Rio Tinto’s third quarter report on Friday is the most important this week.
Bank of Queensland releases its full year (August 31) results midweek.
Thursday sees Fortescue Metals chair, Andrew Forrest making a long waited National Press Club speech in which he will be talking about China and carbon emissions policy.
Elsewhere in Asia, Singapore’s September quarter GDP will be the highlight this week. Moody’s says “We expect Singapore’s economy to have grown 1.3% in quarterly terms following a 1.8% contraction in the June quarter.”
Singapore suffered a quarterly contraction as a resurgence of COVID-19 cases triggered tighter distancing restrictions and weighed on the domestic demand revival.
A relatively strong net trade position is expected to have supported the third-quarter turnaround, but domestic consumption is likely to see only a moderate pickup from the last quarter.
