No ordinary week
by Peter Switzer
This is no ordinary week for the Aussies out there who care about money. Interest rate worriers will have their focus on Wednesday’s inflation data while those nervous about share prices will have the debt dramas in the US Congress.
The latter could really rock Wall Street if the US politicians let politics get in the way of a sensible deficit reduction plan and an agreement to increase the debt ceiling.
My view is that they have to come up with something to satisfy investors and the ratings agencies and my investments recently say I have put my money where my mouth is. I am therefore punting that a solution is on the way and the market will head up. My charts guy, Lance Lai, is also positively inclined and he doesn’t move unless the wriggly lines endorse his fundamental views.
Let’s hope we’re right.
On the local front, it’s inflation that will create the headlines. My old mate Craig James from CommSec sees it this way:
“On Wednesday, the CPI data for the June quarter is expected to show prices up 0.8 per cent in the quarter to put the annual rate of inflation at 3.5 per cent. Clearly volatile elements like fruit and vegetable prices and petrol have been instrumental in pushing inflation above 3 per cent. But the underlying rate (that is, headline prices excluding volatile elements) is expected to be up just 0.7 per cent in the quarter and 2.5 per cent for the year. In other words, inflation is right in the middle of the Reserve Bank’s two to three per cent target zone.”
So the key figure to watch is 0.7 on the underlying inflation read. Any lower and it would be great for people praying for a rate cut, which I still think is less likely than a long pause for interest rates where we are now.
What is interesting is the lower this inflation figure, the higher the hopes will be for a rate cut which could bring the Oz dollar down a peg and help foreigners buy local shares.
So a good inflation number will not only be good for interest rate sufferers but also for all of those investors praying that our share prices start playing catch-up with Wall Street.
Year-to-date, the Dow Jones is up 9.53 per cent but our S&P/ASX is down 3.27 per cent.
A low inflation number could be a big help to the stock market.
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Published on: Monday, July 25, 2011
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