Finance week ahead: ECB meets in wake of Brexit, miners' production on the rise

"Brexit? What Brexit?" seems to be the market group-think at the moment as traders race out and buy "risk", enthused by the idea that global central bankers will just keep the party going with easy money.

Markets at Friday's close:

  • ASX SPI 200 futures -0.2pc at 5,378
  • AUD: 75.8 US cents, 68.65 euro cents, 57.4 British pence, $NZ1.062
  • US: Dow Jones +0.1pc at 18,517, S&P500 -0.1pc at 2,162, NASDAQ -0.1pc 4,490
  • Europe: FTSE +0.2 at 6,669, DAX flat at 9,964 Eurostoxx50 -0.1pc at 2,959
  • Commodities: Brent oil +0.2pc at $US48.09/barrel, Gold +0.2pc at $US1,337/ounce, Iron ore -0.3pc at $US57.80/tonne

Over the week Australian equities rallied around 4 per cent up to their highest point for the year, the US was up 1.5 per cent to another record high and despite all manner of worries, the plucky European markets rose 4 per cent.

Stronger than expected US retail sales figures and solid earnings results seemed to trump European fears.

That could support markets, at least early in the week, although ASX/SPI200 futures trading points to a dip on opening.

Away from equities, bond markets are painting an entirely different picture with long-dated sovereign bond yields hovering around zero — or below — which means that bond traders see only doom and gloom and years of stagnation and worse.

ECB meeting likely to be focus of markets

In a week devoid of significant data releases — domestically and abroad — the markets' focus is likely to be the European Central Bank (ECB) meeting on Thursday, where responses to Brexit and implosion of the Italian banking sector are on the agenda.

As with the UK last week, interest rates are likely to be on hold pending further developments, while the European Central Bank's rather ineffectual quantitative easing (QE) program will be reviewed.

Given the ECB has already bought up all the German bonds available to it in the market, the most obvious call from President Mario Draghi's playbook will be to change the rules to buy some more.

And while the ECB is at it, the tapering of the QE program will probably be extended, which may give the market short term joy, but in the longer term the reckoning will just get bigger and nastier.

There will also be much hand-wringing about what to do about Italy's teetering banks.

The Italian Government is pushing for a taxpayer funded bail-out and the Germans are demanding investors — many of whom are Italian voters — should foot the massive recapitalisation bill.

A mixture of both strategies is likely but then again a bit of can-kicking and "let's wait and see" is a popular default plan in Europe as well.

Domestically, the Reserve Bank of Australia (RBA) minutes from the July meeting on Tuesday will be pored over for any hint of the "easing bias" missing from recent statements.

It probably does not matter much, because if the inflation figures to be released next week are as weak as expected, the RBA will probably just go ahead and cut and once again leave out any mention of an "easing bias".

Miners roll out production numbers

In the corporate world, the big resources companies start churning out their keenly anticipated quarterly production reports.

Rio Tinto (Tuesday):  It should be a fairly solid quarter with iron ore shipments up around 9 per cent bouncing back from a weather-affected March quarter, which translates into an 8 per cent rise over the year.

Copper production is forecast to increase around 18 per cent over the past three months, while coal volumes — both metallurgical and thermal — should be lower.

BHP Billiton (Wednesday): Analysts are tipping BHP will miss its full year guidance for iron ore of 260 million tonnes, despite a solid effort for the quarter.

The suspension of joint-venture activities in Brazil following the tragic Samarco dam collapse will have an impact.

Copper production may be down too on marginally lower grades and a maintenance shutdown at Olympic Dam, and petroleum production is also expected to be down around 6 per cent over the year.

Woodside (Thursday): With LNG lagging oil prices by around three months, falling sales revenues — driven by oil's collapse at the start of the year — should be a theme for all the big LNG producers.

UBS says Woodside's long term contracts should limit the damage to just an 8 per cent fall in price and a 3 per cent fall in revenues over the quarter.

The flip side of the price lag should see the higher revenues in the third quarter reflecting the recent rebound in the oil market.


Date Event Notes
Monday 18/7/16    
Tuesday 19/7/16

RBA minutes

Consumer confidence

Rio Tinto update

Oil Search update

Minutes from July meeting

Weekly reading from ANZ

June quarter production report

June quarter production report

Wednesday 20/7/16 BHP update June quarter production report
Thursday 21/7/16

NAB business survey

Woodside update

S32 update

Q2: Survey of business conditions and confidence

June quarter sales and revenue

June quarter production report from BHP spinoff

Friday 22/7/16

Leading index

Santos update

Jun: Forward looking Westpac series

June quarter production report



Date Event Notes
Monday 18/7/16

US: Housing market indicator

CH: House price index

Jul: NAHB survey, has been solid

Jun: Rising around 7pc YoY

Tuesday 19/7/16

US: Housing starts

US: Building permits

UK: Inflation

Jun: Should bounce back after May drop

Jun: Should also rise from previous month

Jun: Very low, around 0.5pc YoY

Wednesday 20/7/16

EU: Current account

UK: Unemployment

EU: Consumer confidence

May: Still in solid surplus

May: Was at 5pc, may edge up

Jul: Expect a steep decline

Thursday 21/7/16

EU: ECB decision

US: Existing home sales

Official rate already at zero, probably no change

Jun: Tipped to ease back

Friday 22/7/16 US, EU, CH: Flash PMI Jul: A measure of manufacturing activity

Source: ABC News

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