Buckle up: Big week starts on Wednesday

MONDAY and Tuesday passed in almost serene calm – the share market traded within a very sleepy 40-point range.

Wednesday it all changes. The shocks start coming and will keep coming through to the weekend.

First-up Wednesday morning are the allimportant CPI inflation numbers for the June quarter and so the June year.

They will tell us, broadly, three big things. How bad inflation was, how much your REAL wage fell, and what the Reserve Bank is likely to do, indeed must do, with its official interest rate at its meeting next Tuesday, and then the meetings through the rest of the year.

Early Thursday morning our time the Fed – the US Federal Reserve – announces its latest official rate hike. This is critical for Wall St and Wall St is critical for our market.

There will be a couple of hours trading on Wall St after the Fed announcement and that will set up our Thursday trading day.

Later Thursday, new Treasurer Jim Chalmers makes an economic statement to Parliament. It will mostly be about ‘updating’ all the key Treasury forecasts for the economy.

He said last week, it would be “confronting”.

That makes me see it as the political version from an incoming treasurer of what we mostly get – if they’re smart enough – from an incoming CEO.

That’s, paint the inherited picture as bad and bleak as possible, so the only way to go – under your watch – is, hopefully, up.

The statement is not, so Chalmers has said, a ‘minibudget’ – a full, Labor, budget comes in October, when we will be told presumably ‘what are you (Chalmers) going to do about it’, the future outlined Thursday.

Rounding out a huge Thursday, just before midnight our time, the first estimate of US GDP for the June quarter is released. Economists have been lining up to predict it will be a negative.

They are also lining up to predict the US therefore will be in ‘technical recession’ – that it will have recorded two successive quarters of negative growth, after the minus 1.6 per cent growth figure for the March quarter.

Now, apart from the silliness of this supposed ‘recession definition’, as I have explained repeatedly, market punters are really quite desperate for a negative figure – and so, a ‘recession’ – because of that Fed rate rise the day before.

Simply, there’ll be a chorus declaiming: why is the Fed raising rates when the US is in recession? They’d love, they’d positively salivate at the prospect of the Fed backing off on future rate hikes, or at least going soft on them.

That in turn, makes those last two trading days on Wall St critically important: on Thursday New York time, overnight Thursday our time, after the Fed rate rise but before the GDP numbers; and then Friday after the GDP numbers.

We could see a classic ‘bad news is good news (for the market)’ play out, which would not be dampened by the prospect of a local rate rise next Tuesday.

Yes, our interest rates are all-important for home loan borrowers and the property market – and for those ‘invisible’ people, the millions of bank depositors; but they are all-but irrelevant for the share market.

And equally, the RBA never thinks about the local share market when it is raising or cutting rates.

Our market is totally and only hostage to US rates, via Wall St.

The combination of the CPI numbers and the ‘updated’ ChalmersTreasury forecasts will define all sorts of battlefields ahead – most obviously with wages.

Real wages went backwards over the June year; a Labor treasurer is going to promise they will go backwards for a second year in a row. And when mortgage repayments will rise sharply?

Hmm. Interesting times ahead.