Global markets have returned to their familiar "accentuate the positive" refrain.
Wall Street and European traders closed on Friday higher humming the old Bing Crosby number … ignoring negatives and "Mr In-Between".
The positive was another batch of US corporate results pointing to earnings up around 25 per cent on a year ago.
The in-between was US job creation slowing more than expected and a slightly weaker business expectations survey.
The negative was the Trump administration floating that the idea the threatened 10 per cent tariff on $US200 billion of Chinese goods could be scaled up to a 25 per cent tax, while China said it would respond with $US60 billion worth of tariffs.
Friday's Wall Street buying looks likely to see the ASX also "latching on to the affirmative" to start the week with futures traders bidding the market up, putting behind them a poor week when the miners and banks dragged things down .
Talking, but not about trade
While China's State Councillor and former foreign minister Wang Yi met with US Secretary of State Mike Pompeo on the sidelines of a regional summit in Singapore, apparently trade was not discussed.
"How can talks take place under this pressure?" Mr Wang asked reporters.
As the idea of constructive talks got kicked down the road further, probably until after US mid-term elections in November, new items were added to the tariff hit lists.
China's new $60 billion list includes big ticket items such as LNG, aircraft and beef, as well as smaller (but still important) items on the protection scale like condoms.
While China's response this time around is not the same size as the US threat, it is not being seen as a concession.
China's US imports are comparatively much smaller than its exports — which after all is what ignited the trade dispute.
Falling yuan negating US tariffs
A tumbling yuan is, for the time being, protecting China's factories from a lot of pain the US tariff regime could inflict.
Capital Economics estimates if the US tariffs were fully implemented at 25 per cent, China's export prices would rise by only 2.3 per cent.
"That's much less than the 7.4 per cent the renminbi [yuan] has declined against the dollar since the Trump administration announced on 15th June that it was pressing ahead with tariffs," Capital Economics' Julian Evans-Pritchard said.
Mr Evans-Pritchard was wary to assume the rise in export competitiveness would totally offset the impact of the tariffs, but said it appeared his earlier estimate of 0.5 per cent hit to Chinese GDP was too high.
Some insight into the early impacts of the tit-for-tat battle may be garnered this week with the release of China's monthly trade data.
The consensus forecast is the US tariffs will have had only a limited impact, with Chinese imports up (in $US terms) by 10 per cent in July. Imports are forecast to be up as well, around 17 per cent, and the trade surplus slightly wider.
Forward export orders in manufacturing surveys have been falling, but that has more to do with weaker regional demand than tariffs.
The expected uptick in imports is largely due to a likely normalisation of a very weak number in June. The overall import trend is down though, pointing to a steadily slowing domestic economy in China.
RBA rates and forecasts on hold
This week marks the second anniversary of the last time the RBA changed its official cash rate — a cut to the emergency low of 1.5 per cent.
The RBA board will most likely celebrate the occasion by doing absolutely nothing when it meets on Tuesday. Rates are on hold for the foreseeable future, and probably beyond.
The RBA is clinging to its current forecasts for decent GDP growth, inflation gradually rising and unemployment gradually coming down.
The fairly upbeat official forecasts of GDP growth of 3.25 per cent, inflation at 2 per cent and 5.25 per cent unemployment by the end of 2019 are unlikely to be changed when the RBA releases its quarterly Statement on Monetary Policy on Friday.
The new SoMP will extend the RBA's forecast to the end of 2020.
Westpac's veteran RBA watcher Bill Evans said the RBA may be overly optimistic, and its call on unemployment looks particularly vulnerable given the current political uncertainty.
Mr Evans said the usual trend was for employment to collapse in a nine-month window either side of a federal election — a far cry from the RBA's current assumptions.
"It is true that such a pattern has not been apparent during some previous election campaigns but the evidence from 2013 and 2016 must be disturbing," Mr Evans said.
The recent by-election results did little to promote the idea of an early federal poll, with the punditry now thinking a Saturday in April or May next year are more likely options.
"For the 2019 election the polls, the by-election results and the Government's slim one-seat majority all point to considerable political uncertainty," Mr Evans said.
If businesses acted as they did around the past two federal elections the RBA's jobs forecasts will be severely challenged.
"We do not expect the RBA to incorporate any such effect in their forecasts but recent history around election periods raises significant uncertainty about the sustainability of the Bank's employment forecasts and hence their expectation of above trend economic growth," Mr Evans said.
Reporting season cranks up
The first of week on the reporting season was not exactly a tonic for the market's animal spirits with the ASX falling about 1 per cent.
The biggest player reporting, Rio Tinto, disappointed.
While it showered shareholders with a $10 billion capital return, they said, "Thanks, too bad you missed our profit expectations and the stuff about rising costs wasn't great" and promptly sold it and the other miners.
Falling metals prices didn't help the week, neither did the banks' slide.
Nonetheless, the punters are still expecting a solid season of results with earnings growth tipped to come in around 9 per cent — heavily influenced by the resources sector.
Commonwealth Bank (Wednesday) will be the key release.
One could be forgiven for thinking Australia's biggest banks will get smashed.
Its legal bills are mounting up — a $700 million fine for money laundering and terrorism funding offences is just the start — compliance costs forced by regulators are also rising, loan growth isn't great, the housing market is slowing and margins are shrinking.
Nonetheless, the market is still expecting a decent underlying profit above $9 billion, but down from $9.7 billion last year.
Expect a few CEO mea culpas — "it's not been good enough, we're listening, we've changed". Investors will look through that and as long as the dividend hasn't been changed for the worse, loan quality is holding up and the commentary isn't too grim, CBA should get through relatively unscathed.
If a financial institution has managed to generate more negative headlines than the CBA, it's AMP. AMP will also trot out half year results on Wednesday.
Interim CEO Mike Wilkins has a bit of explaining to do. AMP recently cut is profit guidance, its share price has tanked and its financial planning model, to state the bleeding obvious, is challenged.
Uncomfortably, AMP's results coincides with the resumption of the bank royal commission's inquiry into superannuation where AMP is expected to feature, but not in a happy way.
Other big names reporting this week include Shopping Centres Australia, IOOF and Transurban (Tuesday), Tabcorp (Wednesday), AGL, Crown and Suncorp (Thursday) and James Hardie, REA and Newscorp (Friday).
Australia
| Date | Event | Forecast |
|
Monday 6/8/2018 |
Bank & financial services royal commission | Hearings resume, focussing on the superannuation sector |
| Job ads & inflation gauge | Jul: Private sector forecasts, unlikely to change the dial | |
|
Tuesday 7/8/2018 |
RBA rates decision | No change |
| Transurban FY result | Big jump in earnings expected, solid dividend rise too | |
| SCA Property Trust FY result | Solid result from the shopping centre trust | |
|
Wednesday 8/8/2018 |
Housing finance | Jul: Getting softer, particularly for investors |
| RBA speech | Governor Philip Lowe speaks | |
| CBA FY result | Underlying profit of $9.1bn, down from $9.7bn last year | |
| AMP half year result | Already issued a profit warning, restating guidance to between $490 and $500 million | |
| Tabcorp FY result | Earning tipped to be up 30pc after Tatts merger, update on synergies | |
|
Thursday 9/8/2018 |
AGL FY result | Earnings up around 20pc to around $1bn. Update on gas import plans |
| Crown Resorts FY result | Earnings fairly flat, update on Barangaroo project | |
| Mirvac FY result | 10pc rise in profit, insights into property market | |
| Orora FY result | Solid profit rise for the Amcor spin-off | |
| SuncorpFY result | Tough life insurance climate offset by cost cutting & higher margins. $1bn profit | |
|
Friday 10/8/2018 |
RBA statement | Quarterly statement on monetary policy, forecasts unchanged but extended to the end of 2020 |
| News Corp FY result | Looking like a $1bn turn around after last year's $740m loss | |
| REA FY result | Flat result. Listings lower, but Asian business may contribute well |
Overseas
| Date | Event | Forecast |
|
Monday 6/8/2018 |
CH: Current account balance | Q2: Looks at financial flows, should rebound into surplus from rare deficit in last quarter |
|
Tuesday 7/8/2018 |
CH: Foreign reserves | Jul: Holding steadily above $US3 trillion |
|
Wednesday 8/8/2018 |
CH: Trade balance | Jul: Both imports and exports up and surplus to widen slightly. US tariffs unlikely to affect this month |
|
Thursday 9/8/2018 |
CH: Inflation | Jul: Consumer prices weak (+1.9pc), producer prices rising on higher commodity prices (+4.7pc) |
| NZ: RBNZ rates decision | No change | |
|
Friday 10/8/2018 |
CH: New loans & money supply | Jul: Money supply and credit has been weaker, pointing to s slower economy |
| JP: GDP | Q2: May have shrunk |
