Equity markets should push higher this week even as investors assess election results from New Zealand and Germany and reassess their bets on US interest rates.
Political events, including the ongoing war of words between the US and North Korea, have had a much more muted impact on markets than many anticipated, and that it likely to continue with election results from across the Tasman as well as in Germany. The New Zealand dollar, up 5.7 per cent against the greenback so far this year, and the euro, up 14 per cent versus the US dollar, will be in the spotlight initially.
ASX futures were up 7 points or 0.1 per cent over the weekend as Wall Street closed flat on Friday. The Dow Jones dipped ever so slightly lower, while both the Standard & Poor's 500 and the Nasdaq Composite edged 0.1 per cent higher. The Australian dollar ended Friday trade 0.5 per cent higher at around US79.62??, regaining some strength after a sudden reversal. The ASX has posted a loss in four of the last five weeks and is hovering near seven-month lows.
The spot price of iron ore extended its retreat on Friday, falling another 3.8 per cent to $US63.56 a tonne. The 12 per cent fall in the spot price last week could put further downward pressure on Fortescue Metals Group, which dropped near 8 per cent last week.
A slew of speeches from central bankers this week will help provide additional context on the outlook for inflation, global growth and where interest rates are heading.
Locally, there are two Reserve Bank officials poised to speak this week: assistant governor for financial stability, Michelle Bullock, is on a panel at a "Where to from here" conference early Tuesday, and deputy governor Guy Debelle is speaking at the Bank of England's conference commemorating 20 years since it was given independence from government conference on Thursday evening local Sydney time. His speech is titled "Central Bank Independence In Retrospect".
In New Zealand, Grant Spencer will hold his first Reserve Bank meeting as acting governor, though the bank is expected to hold policy steady on Thursday. Like the RBA, the RBNZ is seen as in no rush to match global peers in tightening policy.
As for the US Federal Reserve, there will be a lot more commentary to assess over the next five days: William Dudley, Charles Evans and Neel Kashkari speak on Tuesday Australian time, then Mr Evans again, Loretta Mester, Lael Brainard, Janet Yellen and Raphael Bostic speak on Wednesday. The next day will see Mr Kashkari and Ms Brainard speak again, as well as James Bullard and Eric Rosengren, with Stanley Fischer, Esther George on Friday and Patrick Harker closing out the week. Overall, its 12 speakers making no less than 15 speeches.
After a speech in Zurich on the weekend, San Francisco Fed boss John Williams said he saw 2.5 per cent as the "new normal" for the key US rate, in keeping with a slightly lower tweak in Fed projections on futures rates. While saying that there's potential for a lift in December, Mr Williams said the important point was not the specific timing of hikes but that rates continually rise over the next two years, in sync with what happens with the US economy.
On the US data front this week are several regional Fed bank activity measures, house prices, new home sales, durable goods orders, pending home sales, second quarter annualised GDP, personal income, personal spending and PCE inflation - the Fed's favoured measure.
"The market is now pricing in 65 per cent odds of a hike in December and almost 2 hikes by the end of 2018," said TD Securities' Priya Misra, Gennadiy Goldberg and Cheng Chen in a note. "Even though our macro strategists expect another hike over this period, risks are a lot more symmetric now and we do not see a near-term catalyst for a sharp move higher in rates."
That said, potential catalysts include tax reform in the US and a decision by the European Central Bank to start paring back its monthly asset purchases.
As key is US data to assessing the outlook for rates, a degree of "noise" is expected for at least the next month or several from the impact of Hurricanes Harvey and Irma on Texas and Florida in particular.