Australian Markets Weekly: 3 October 2016

Having just returned from a client tour this past week in the Riverina in southern NSW, there was also one topic that is currently front and centre for local farmers, and that was “rain”.

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Weather vagaries playing out in farming and resources

  • This week, we focus on the weather that stands to have different short and medium term impacts on the farm sector.  It’s a big positive for farmers that are now looking to re-stock herds as well as providing a good start for this year’s grain crops, but the (continuation of) especially wet weather is now at risk of becoming an impediment to this year’s looming grain production and possibly delaying the planned planting of crops such as cotton over coming weeks.
  • All that said, from a recent trip through the Riverina, most wheat crops look very encouraging – even excellent to the naked eye of a non-specialist – not showing marked signs of being adversely affected.  For those areas with good drainage, crops look like they are ones “out of the box”.
  • The weather may also be playing a part in affecting Australian coal production and thus being price-supportive in a market where both coking and steaming coal prices having been strong recently – especially coking coal – mostly it seems from Chinese mandated industry reform coal production cutbacks
  • This week, with China out for Golden Week celebrations, the offshore focus will be even more intense on the US with the ISM Manufacturing release tonight, the US ISM Non-manufacturing report on Wednesday and then payrolls on Friday.  Both ISM releases are expected to improve somewhat with the employment components from each on watch into Friday’s payrolls report.  A solid 170k is expected with a steady unemployment rate of 4.9% along with average weekly earnings growth of 0.3%/2.6%, up from 0.1%/2.4%, a reading that will figure in importance alongside headline payrolls growth.
  • The RBA is expected to leave rates unchanged tomorrow (and by NAB until mid-2017).  The RBA expects that the diminishing drag from the resource sector investment and supportive commodity price should underpin employment and growth.  With no change in RBA monetary policy priced in this month, the market will be interested in tomorrow’s post-Board Media Release wording on the economy, housing, and the AUD.
  • There are three important local data releases this week, the most market sensitive being Wednesday’s Retail Sales, with NAB expecting sales to rise from higher Department Store Sales that were very weak in July.  Also on the local economic agenda are Building Approvals (tomorrow) and International Trade on Thursday.

 

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