Aaron Bunch Journalist with Australian Associated Press | Collection of published work | + 61 484 008 119 | abunch@aap.com.au

Aaron Bunch
ASX expected to start the week higher

Australian stocks are likely to open higher on Monday following Friday’s plunge of 1.4 per cent that was sparked by concerns about the US economy.

July 30, 2017

The Australian share market is expected to start the week higher, bouncing back from Friday’s 1.4 per cent plunge on the back of concerns about the US economy and the direction of US government policy. 

The local share prices futures index ended the week up 24 points or 0.4 per cent.

But the lead from Wall Street is soft, due to the release of mixed US company earnings results in on Friday.

The Dow Jones was up 34 points but US tech stocks dragged the broad S+P 500 down 0.1 per cent thanks to Amazon’s weaker than expected results on Thursday night.

European shares were also down 0.8 per cent.

AMP Capital’s chief economist Shane Oliver said developments in North Korea and continued instability in the White House may also cause some uncertainty on the Australian stock market.

“But you could argue there is nothing new there,” Dr Oliver said.

On the data front, it’s an avalanche next week but one to watch is the Reserve Bank board meeting on Tuesday.

Dr Oliver said it’s unlikely there will be a change in Australian interest rates by the RBA because “the bank’s read on the economy is too mixed to do anything.”

He said on the one hand economic growth looks to have picked up but there is still significant uncertainty surrounding consumer spending and housing construction activity, coupled with below target inflation numbers and record low wages growth.

“And weighing on all that is the rise in the Aussie dollar.”

A continued surge by the Australian dollar will further complicate interest rate policy decisions for the Reserve Bank.

Last week it broke above the 80 US cents barrier and if it continued to rise life will become tough for tourism, manufacturers, farmers, universities and the miners, and could eventually weigh down the economy.

“That would be concerning for the RBA,” Dr Oliver said.

He said it may lead to a more strident effort by the Reserve Bank on Tuesday to talk the Australian dollar back down.

Globally, US payroll employment figures on Friday will be closely watched.

They’re expected to show continued solid jobs growth in the US with 180,000 new jobs created in July and a fall in the unemployment rate, coupled with subdued wages growth.

Dr Oliver said if this happens it will be good for the Australian share market but there may be a further rise in the Australian dollar due to the US Federal Reserve’s likely reluctance to raise its interest rate further.

At the close on Friday the benchmark S&P/ASX200 was down 82.2 points, or 1.42 per cent, at 5,702.8 points, while the broader All Ordinaries index was down 77 points, or 1.32 per cent, at 5,755.2 points.

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