The first tangible evidence that there is something behind the so-called "Trump trade" may be presented this week when the US President's much-vaunted tax policy is unveiled.
Donald Trump's confirmation that his tax plan would be finally be released on Wednesday (Thursday AEST), didn't totally light up the market with Wall Street slipping on Friday, although it made a solid 0.5 per cent gain for the week.
Uncertainty about events in Europe — particularly France — didn't help, although another batch of solid corporate results were a positive.
Futures trading on the ASX over the weekend split the difference, and pointed to a flat opening to a shortened week's trading.
Inflation set to rise
Locally, first quarter inflation (Thursday) will be the focus of attention this week.
The punditry has forecast a headline inflation increase of 0.6 per cent over the quarter, to give annual rate of 2.2 per cent.
If correct, it would move the headline figure back within the Reserve Bank's 2-to-3 per cent target band for the first time in two-and-a-half years.
The last quarter of 2016 saw headline inflation growing at an insipid 1.5 per cent.
Much of the jump will be supported by the negative — some said deflationary — March quarter figure from last year dropping out of calculations.
However, there is still a fair bit of inflationary fuel being supplied by soaring east coast gas prices, as well as education fees and food prices rising over the quarter.
RBC's Michael Turner noted outside these sectors inflationary trends remain subdued, reflecting stagnant wages and falling margins among retailers.
"We expect this will leave the average of the RBA's core measures at a more modest 1.8 per cent, a rate of underlying inflation we expect will persist for most of 2017," Mr Turner said.
US tax plans a big test for Trump administration
Mr Trump certainly set the bar pretty high when back in February he described his impending tax plan as "phenomenal".
It is perhaps the key piece of the economic revolution he plans, buttressed by big infrastructure spending, financial deregulation and cost-cutting measures in areas such as health care.
So far nothing much has happened, bar an ill-fated effort to wind back Obamacare, so the tax announcement is a big deal and real test of the administration's economic and fiscal credibility.
The package so far has been leak-proof, but the 2016 election campaign speeches highlighted deep personal and corporate tax cuts as central.
The number of tax brackets will be revised down from 7 to 3, while there will be a cap on deductibility of business interest payments and a crackdown on multinationals squirreling their profit away overseas.
A failure to deliver on expectations could have very ugly repercussions for the already faltering Trump trade.
Corporate America gaining strength, economy may be slowing
While the traders wait anxiously for the tax news, they will be able to amuse themselves with the busiest week of the current US reporting season.
On Reuters' numbers, around 40 per cent of the benchmark S&P500 index — representing $US7.7 trillion of value — will trot out results this week.
This includes giants such as the company formerly-known-as Google, aka Alphabet, Amazon, Microsoft and Exxon.
So far, results have well and truly beaten expectations, with earnings-per-share growth for the quarter up 11.2 per cent, the strongest effort in more than five years.
While corporate America is motoring away, the rest of the economy may be hitting the brakes again.
The consensus for GDP out on Friday is for growth to have slowed to an annualised 1.3 per cent, from a not-exactly-flat-chat 2.1 per cent in the previous quarter.
Some analysts are describing the weakness as a pretty big "headfake" — a basketball term, for appearing to drive in one direction, and suddenly taking off in another.
Weak consumer spending will certainly be a brake on GDP this time around, but savings are solid — and who knows, a big surprise from the impending announcement on tax cuts may just unleash a wave of wallet emptying.
Oil deal extended and iron ore edges back
Oil endured another tough week, with global markets sliding 2 per cent on Friday.
Both the global benchmark Brent crude and US-based West Texas crude slid 7 per cent for the week, with US prices dipping below $US50 a barrel for the first time since March.
With prices looking very much like one-way traffic, __news emerged on the weekend — after the markets closed — that the deal brokered by the Saudis and Russia to cut production by 1.8 million barrels a day will be extended by another six months.
The usual sources "familiar with the matter", spoke to the usual wire services to pass on the whisper that the deal will be extended to the end of the year in a effort to clear the massive oil glut that has built up.
That might support prices again briefly, but generally it just encourages greater production in US onshore fields, which again drives the price back down.
US production is at its highest level since August 2015, with the rig count still going up, as it has every week for more than three months.
Iron ore climbed off the mat on Friday, with spot prices up a bit over 1 per cent, but still down more than 30 per cent from their February peak.
Future prices had a bit more spring their step, up 6 per cent rallying along with their mates in the steel futures game.
Both iron ore and steel futures jumped around 10 per cent late in the week, after hitting their lowest point since early January.
The move didn't totally surprise ANZ commodities analyst Daniel Hynes.
"We are still constructive on iron ore, with enough bullish price indicators to suggest the sell-off in recent weeks is overdone," Mr Hynes said.
"However in the short term, negative sentiment will make it difficult to arrest the selling and for prices to stabilise."
The ANZ house view is iron ore will settle in the $US70-$80/tonne range for the remainder of the year.
Others have a far gloomier opinion.
Australia
| Day | What to watch | What to expect |
|---|---|---|
Wednesday 26/4/17 | Inflation BHP production | Q1: Headline rate forecast to rise to 2.2pc YoY Quarterly production report |
Thursday 27/4/17 | Import/export prices RBA speech Mirvac update S32 production Stockland update | Q1: Export prices rose a booming 12.4pc last quarter Governor Phillip Lowe speech Investor briefing from the property developer Quarterly production report Investor briefing and quarterly results |
Friday 28/4/17 | Private sector credit Producer price index Origin Energy report | March: Growing at around 5pc YoY Q1: Very modest 1pc YoY growth last quarter Quarterly production numbers |
Overseas
| Day | What to watch | What to expect |
|---|---|---|
Tuesday 25/4/17 | US: New home sales | Mar: Has been fairly solid |
Wednesday 26/4/17 | US: Tax announcement | Donald Trump expected to release details of his tax package |
Thursday 27/4/17 | CH: Industrial profits US Wholesale inventories EU: ECB meeting JP: BoJ meeting | Mar: Up 2.3pc YoY in February Mar: Refinancing rate to be held at zero No change expected |
Friday 28/4/17 | US: GDP UK: GDP EU: CPI estimate | Q1: Growth forecast to slow to 1.2pc YoY Q1: Growth forecast to be 1.9pc YOY Apr: Inflation forecast to be growing at 1.5pc |
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