Buckle up. Events over the next week will set the tone for business in Western Australia for at least the next 12 months, with small miners under bank pressure as they reveal how little cash they have, and central banks gather to consider fresh economic data and interest rate settings.
Australia’s big event will be the August 6 meeting of the Reserve Bank, which could trim another 0.25 per cent off a cash rate already at a record low of 2.75 per cent.
But before the RBA makes its decision on Australia’s interest rates, three other central banks will reveal their settings – the US Federal Reserve, the Bank of England and the European Central Bank are due to make interest rate and economic statements this week.
The flow of financial news will also include the Friday release of US employment data, which should show how that country’s economic recovery is progressing, and the release in China of the purchasing managers index, which will tell a story about the strength of that country’s economy.
Each event is important, but collectively they represent one of the most significant periods of economic news since the 2008 start of the GFC and are worth closer examination.
• The small miner cash crisis, which is rapidly thinning the ranks of West Perth-based exploration and mining companies, will create more headlines this week as cash-balance reports for the three months to June 30 are filed at the stock exchange with tomorrow the deadline for statements to be lodged.
Some June quarter reports have already been filed but companies with the least cash always try to hide their predicament to the last minute. And while it is impossible to say how many small miners are already insolvent, it is worth noting that 401 companies (mainly small explorers) have a stock market value of less than $5 million. When they are added to the 177 already suspended out of the 1,976 companies listed, it means than 32 per cent of all ASX stocks are worth less than $5 million – or not enough to buy a house with river views in Dalkeith.
• Banks are already crawling over the small end of the mining sector, with a new study revealing that miners and mining service companies are top of the bad-debt watch list. Investment bank UBS surveyed chief loan officers at the big four commercial banks to find that miners were suffering from declining asset quality and are likely to face tougher conditions in the year ahead.
• Interest rate decisions will vary from country to country, with Australia given a 50 per cent chance of another cut in the cash rate, while the US, Europe and the UK are not expected to make changes.
• Non-farm employment data in the US will be released after Australian markets have closed on Friday, but are a critical factor in that country’s economic settings, with the Chinese PMI data important to both China and Australia because it will help determine future commodity demand, especially for WA’s biggest export item, iron ore.
By early next week there will be enough economic data and central bank decisions in the market to set the business tone, and stock market trend, for the rest of the year and early next year.
Adding to the cocktail of numbers will be a very human event, the annual Diggers & Dealers forum in Kalgoorlie, where one man might be able to explain what it all means.
Austan Goolsbee, who originally seemed an odd choice for keynote speaker on the Monday opening day of the forum, is one of the top economists in the US, serving as economics professor at Chicago’s Booth School of Business and having also acted as chairman of the Council of Economic Advisers to President Obama.
The 44 year old has been rated as one of the six “gurus of the future” by London’s Financial Times newspaper while another publication, Salon, rated him one of the 15 sexiest men of 2010.
This week’s flow of economic news this week, if not the Salon rating, should ensure a packed house at the Goldfields Arts Centre on Monday morning.