Now for the tricky bit — will company results looming in America deliver for the optimists? That’s the question upmost in the mind for the traders who ultimately determine the direction of Wall Street and related markets.
'Have the bulls overdone their optimism?' is an enduring question being posed. The reporting season will also answer that question. We will hear about it on Thursday, our time, when Alcoa reports. The number crunchers will then wait with high anxiety until the big names deliver their ‘scorecards’.
In Australia, it would be too optimistic to expect that the Reserve Bank will cut interest rates today. Our cash rate, which the Big Bank determines to influence the rates that banks charge us, is now at three per cent and at the height of the negativity driven by doomsday merchants, who were aided and abetted by short-sellers, it was tipped that the cash rate would fall to two per cent.
Optimistic economists think the rate cuts are over but there are even some of them — including Don Stammer, the former chief economist of Deutsche Bank, who appeared on my program on the Sky News Business Channel last night — who think the Reserve Bank could give us another two 0.25 per cent cuts later in the year so as to offset any negativity that could result from rising unemployment.
He sees a recovery of the economy happening, while unemployment could keep rising for over a year or even two, as this economic measure can be stubborn and a laggard in reversing direction. He thinks unemployment could go as high as eight per cent.
Someone like CommSec’s Craig James thinks it could peak before seven per cent, which would be a great outcome.
This is a big week for measuring the health of the Aussie economy with housing finance, consumer sentiment and the latest unemployment numbers out for the month of June.
My guess is that some bad news will eventually come through on the economy, but it won’t be as bad as the bears expect. Don Stammer, who has seen more recessions than most of us, agrees. He also believes the China recovery story and that’s great news for us!
Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.