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Australian stocks to open slightly lower as data flow eases

Australian stocks to open slightly lower as data flow eases

CANBERRA: Australian stocks are set to open slightly lower on Tuesday, at the start of a holiday-shortened week that is light on domestic data flow compared with last week’s torrent of economic indicators.

The current ASX SPI futures contract has the main equity index opening 0.05 per cent down, although this might change as the rest of the world’s equity markets open for business.

The lower start to the Australian sharemarket reflects Friday’s small declines on Wall Street, where a strong May non-farm payroll report shortened the odds of an earlier start to US Federal Reserve tightening. The US economy added 280,000 jobs in May, the most in five months.

“Overall, at this stage this evident strength in the labour market probably isn’t enough to persuade the Fed to hike rates by July, but it definitely makes a rate hike by September probable,” Australia and New Zealand banking group economist Con Williams said in a research note at the weekend.

The Dow Jones Industrial Average ended the day down 0.3 per cent, or 56 points, at 17,849 points, while the S&P 500 fell 0.1 per cent to 2093 points.  However, the technology-heavy NASDAQ edged up slightly.

In Europe, meanwhile, Greece’s debt woes continued to weigh on equities, with the Euro Stoxx Index closing down 1.4 per cent on Friday. The German and French markets both shed 1.3 per cent, while Greece was off a massive 5 per cent, after the stand-off between the country and its creditors over a structural reform package heightened fears of a default on payments due to the International Monetary Fund.

Greece technically missed a €301 million ($439 million) instalment on Friday, but actually has until the end of June to secure the release of €7.2 billion in loans and assistance to cover this and other payments coming up over the next two months.

Greek Prime Minister Alexis Tsipras said the current demands of European Union and IMF creditors were “absurd” and “irrational”, although he sought to assure markets that a deal was nonetheless close.

In Australia this week the focus will be on the May labour force report on Thursday, with private sector jobs and sentiment surveys and housing finance approvals also likely to interest markets.

On the first count, economists expect no change in the current headline unemployment rate of 6.2 per cent, and participation rate of 64.8 per cent.

An increasingly data-dependant Reserve Bank of Australia (RBA) will watch closely for changes in the job market. Any signs of a rising jobless rate could force its hand on interest rates later in the year, Bank of America Merrill Lynch economist Saul Eslake said.

“The labour force data are key in the bank’s current reaction function,” he said in a weekend note. “A rising unemployment rate, even in line with its forecast, will keep the risks to policy skewed to the downside.”

Markets might be offered insights to current RBA thinking when governor Glenn Stevens addresses the Economic Society of Australia in Queensland at a lunch on Wednesday. Any hints of further easing by the bank will drive Australian dollar-selling and buoy equity indices.

Housing finance data released on Tuesday will also interest the RBA, which remains concerned that record low interest rates will pump up further property prices in Sydney and Melbourne. Economists, however, expect month-on-month home loan approvals to have contracted in April, after climbing 1.6 per cent in March.

The other data scheduled this week include the National Australia Bank business confidence survey for May, the ANZ job advertisements series for May, the Westpac consumer confidence index and the latest weekly ANZ Roy Morgan consumer confidence index.

Of most interest here is the NAB survey, which will be the bank’s first test of mainly small-business reaction to measures to help them in the federal budget handed down in early May.