Opening Calls:
FTSE 6159 +22
DAX 9547 +16
CAC 4257 +11
The 5 key drivers for the ASX next week
1. Oil
Oil has dropped 9.2% since its intra-day peak of US$41.90 on 22 March and it was looking like it was getting ahead of itself above the US$40 level. The underlying supply and demand dynamics in the oil market are still far from improving and this realisation seems to have been behind the pullback. But the spot price has developed a new element of volatility of late as the 17 April oil producers meeting in Doha approaches. Oil sold off sharply in the wake of comments by Saudi Arabia stating that there would be no deal without Iran, and then saw a bounce after Kuwait came out and stated that a deal could go ahead without Iran. Positioning by different sides in the lead up to the meeting is likely to keep the price highly volatile. What is certain is that global assets’ correlation with the oil price has increased considerably over the past few weeks again as the potential for a renewed selloff in oil has started to concern markets.
2. US Earnings
US earnings are expected to see the biggest quarterly drop in six and a half years. The big concern for markets is that this has usually coincided with a recession. While US growth is weak, it does look to be materials and energy companies that are driving the profit declines. Earnings are also backward looking indicators and stock prices are meant to be forward looking. If markets come to the conclusion that this will be the worst quarter of the cycle, stocks may actually gain if they begin pricing in improved profits for the next quarter.
3. Australian Employment
Australian employment figures for March will be released on 14 April with the market looking for a gain of 18,500 jobs. This would be the biggest increase since the blowout months of October and November where we saw 47,790 and 72,410 jobs added, respectively. The data flow out of Australia has not been amazing of late, and the ANZ job advertisements index has been declining. Given this, market expectations do look a little optimistic.
4. Chinese CPI and GDP
China’s March CPI figures will be released on 11 April and is expected to increase to 2.4% in year-on-year terms. The key point to watch is whether food inflation is getting out of control again. Concerns are rising that the spike in Chinese inflation may halt further monetary easing.
China’s 1Q GDP will be released on 15 April. Expectations are for it to ease to 6.7% year-on-year growth from a previous 6.8%. It does seem fairly clear that government stimulus has helped pick up China’s activity indicators, most evident in the PMIs. This should have supported 1Q GDP growth, but Chinese GDP numbers have often been criticised for being “overly smoothed”. Given China’s propensity for publishing strong GDP numbers that sometimes don’t reflect the underlying data, there could be some upside to the figures.
5. US CPI
US CPI figures also come out 14 April. The key figure to watch will Core CPI (which excludes volatile food and energy prices), which has been steadily increasing since the middle of 2015. In February Core CPI was 2.3%, showing underlying inflation in the US is starting to show rude health. The Fed traditionally put more emphasis on the PCE Core inflation number, which is sitting at 1.7%. But another strong Core CPI number will heighten the case for 1 or 2 rate hikes by the Fed this year.