Weekly Trading Diary.

The key decision this week will be by the European Central Bank Thursday night our time, and the key announcement will be the Garnaut Climate Change Review to be released on Friday in Canberra.

While our Reserve Bank won’t change rates at its board meeting tomorrow, the ECB has already signalled vigorously that rates will rise 0.25% at this week’s meeting, which will add to the woes of financial markets, the US dollar, and the US economy and hit sentiment generally.

It will come the same day as June employment and unemployment figures are released in the US, a day ahead of schedule because of the July 4 Independence Day long weekend in the US.

Euozone inflation for June will be published tonight and could very well show an acceleration to 3.8%-4.2% on an annual basis, according to some forecasts.

That will add to the pressure on the ECB to lift rates, despite figures out last week suggesting the eurozone economy and especially the strong German economy turned down last month and in early June. Last Friday saw early German and Spanish inflation figures suggesting a surge with price pressures to the highest level in 15 and 11 years respectively.

But a key European sentiment index showed a surprise fall to go with the surprise contraction in the eurozone services sector early in the week. Some European analysts say there is now a strong possibility economic growth in the eurozone has now slowed to around 0.3% annual, lower than the sluggish US economy (which grew 1% in the March quarter) and about level with the slumping British economy, where growth has halved to 0.3% according to the latest figures.

But there was also more bad news on inflation in the US: not oil bounding up to $US142.99 a barrel in New York on Friday, but a doubling in the monthly rise to 0.4% of the US Federal Reserve’s favourite inflation measure, the so-called PCE index (Personal Consumption Expenditure deflator). That was boosted by big rises in energy and food costs and was the highest growth since last November.

Rising food and energy prices are considered to be volatile and not long lasting: the growth in price inflation in both areas has been going on now for the best part of a year, so there is a growing danger that these increases are being converted to endemic price pressures in the wider economy.

Thursday’s jobs figures will be influential: the tax rebate boosted personal consumption in May by 0.8%, which is what it is supposed to do and should have some impact on job loses. But polls by Reuters and Bloomberg estimate 60,000 jobs were lost last month, with the unemployment rate dipping to 5.4% from the 5.5% level which surprised the market last month.

Besides the jobs figures, Thursday’s data releases include the important Institute for Supply Management’s June reading on the huge US services sector: tomorrow night sees the ISM survey of manufacturing and June car sales, which are expected to show another fall, especially for fuel guzzlers like Sports Utility Vehicles.

May’s sharp plunge in sales forced Ford and General Motors to slash production of these models and pick up trucks and move to boost output of more fuel-efficient vehicles. US car buyers continued to ignore the bigger models in June and sales overall could be down another 10%-15% for some types.

Even the mighty Toyota of Japan is cutting production of its bigger truck models. Petrol at or over $US4 a gallon has wrought dramatic change in buying and driving habits in the US in the last six weeks.

Two Fed members are also to make public appearances over the week and will attract attention because of the fragility of markets and the confusion about the Fed’s policy objectives after the meeting last week.

In Japan the Tankan business survey is likely to show a further slowing in business conditions.

Besides the Reserve Bank meeting here, we will also see the release of the TD Securities inflation gauge and data for new home sales, private sector credit, retail sales, building approvals and the trade balance for May are all due for release.

The trade figures will be interesting because with the new high iron ore, coking coal and thermal coal prices, it’s likely that the monthly trade deficit will be eliminated.

We will also get the private credit figures from the Reserve Bank today for May and the June Commodity price Index tomorrow.

The important local figures though will be the retail trade and building approval numbers for May. Both are expected to continue to show the impact of the Reserve Bank’s anti-inflation campaign.

But the most important local report of any kind for some time is due for release on Friday when Professor Ross Garnaut releases the draft of his Climate Change Review.

Emissions trading, carbon tax and many other issues will be explained and move to centre stage in economic policy debates from now on.

MONDAY:

End of 2008 financial year; RBA releases Financial Aggregates for May; TD Securities/Melbourne Institute Inflation gauge for June; Housing Industry Association’s new home sales figures for May.

TUESDAY:

Start of 2009 financial year; RBA board meets with statement at 2.30 pm on the decision; RBA releases June Commodity Price Index; Australian Industry Group/PricewaterhouseCoopers Australian Performance of Manufacturing Index for June.

WEDNESDAY:

Skilled vacancy figures from the Federal Government for June; ABS releases retail trade and building approvals figures for May.

THURSDAY:

ABS figures on international trade for May.

FRIDAY:

The Climate Change Review draft report from Professor Ross Garnaut will be released in Canberra.




	
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