Australian stocks look set for a jittery start on Monday, with all eyes on Washington DC as legislators try to hammer out a deal to avoid a potential US debt default.
US president Barack Obama was due to address the nation at 1100 AEST on Monday, as the clock ticked down to the August 2 deadline to reach a deal on lifting the US debt ceiling.
Failure to arrive at an agreed outcome would cause a shutdown of some government services, potentially trigger a downgrade by global ratings agencies and reverberate around world markets.
AMP Capital Investors chief economist Shane Oliver says the situation in the US would be the main focus when the local stock market opened on Monday.
“Unless there is some sort of breakthrough, it’s going to be a pretty nervous start, given the increasing risk that America might not reach a deal in time,” Dr Oliver said on Sunday.
“Which in turn means a potential default, or more likely a big cut to US government spending for some period of time.”
The Australian dollar finished the US trading day at 110.07 US cents, up about half a cent from Friday’s local close of 109.54 US cents.
Dr Oliver said neither a proposed solution from Republicans in the US House of Representatives or the Democrats in the Senate would deliver the required $US4 trillion in savings over the next decade to avoid a ratings downgrade.
“So even if we get a deal through, America will probably lose its AAA sovereign rating, which will likely result in ongoing demand for the Australian dollar as a safe haven,” Dr Oliver said.
The local market received a mixed lead on Friday night (AEST), when Wall Street finished weaker as investors responded negatively to the latest US economic growth figures.
The Dow Jones Industrial Average slipped 0.79 per cent, the S&P500 eased 0.65 per cent and the NASDAQ shed 0.36 per cent.
Benchmark crude oil prices fell but futures contract prices for metals such as gold and copper settled firmer.
The September share price index contract finished Friday night’s session down three points at 4,734 points, with 7,419 contracts changing hands.
In terms of local events, the Reserve Bank of Australia (RBA) was due to hold its monthly board meeting on Tuesday.
Of the 15 economists surveyed by AAP last week, 12 expected the central bank to keep the cash rate on hold at 4.75 per cent.
But many expected a close call, given higher-than-expected inflation data published last week.
“There are enough uncertainties domestically and overseas to keep the RBA sidelined,” JP Morgan economists said in a research note dated July 29.
In company news, first half results from Rio Tinto, due on Thursday, headline the August corporate earnings season.
CommSec chief economist Craig James said he expected resources companies to report strong figures despite the high Australian dollar and production disruptions, but most other consumer-dependent sectors to struggle.
“We’ve heard about the two-speed economy, well this is going to be the two-speed earnings season,” Dr Oliver said.
