2 investing trends to watch for the week ahead

The S&P/ASX 200 Index (ASX: XJO) is set for a flat start ahead of trading on Monday, following negative sentiment from overseas markets on Friday. Nevertheless, two key events on Tuesday could shape the market and make certain shares ripe for the picking.

The week ahead

Local events

Locally, the Reserve Bank of Australia (RBA) is due to provide its monthly decision on Australia’s cash rate on Tuesday at 2:30pm (AEST). Financial markets are pricing in a less than even chance of the RBA cutting again in June, following the 25 basis point reduction in May.

Although consensus suggests another rate cut is likely this year, economic commentators believe the RBA will hold rates in June to determine the impact of the May rate cut, before cutting again. This means stocks are unlikely to receive a broad-based boost from any economic stimulus this week.

Nevertheless, investors will analyse the statement of monetary policy to take guidance on the RBA’s view on Australia’s economy, including the likelihood (and timing) of any future interest rate cut. A dovish policy statement could trigger buying in high yield stocks such as Australian & New Zealand Banking Group (ASX: ANZ), National Australia Bank Ltd.  (ASX: NAB) and Telstra Corporation Ltd (ASX: TLS), taking them higher across the week.

Alternatively a hawkish statement could indicate no further rate cut is imminent, driving the Australian dollar higher and sending outbound tourism stocks like Flight Centre Travel Group Ltd (ASX: FLT) and Webjet Limited (ASX: WEB) soaring.

Offshore events

On Monday (Tuesday morning local time), U.S. Federal Reserve chairperson Janet Yellen is slated to provide an update on the economic outlook and monetary policy for the United States.

U.S. jobs data on Friday cast doubts on the U.S. economy’s ability to withstand another rate rise, thus investors will use this speech to assess the Federal Reserve’s reading of the economy.

If the speech suggests the U.S. Federal Reserve will lift interest rates when it meets again on June 14 and 15 this year, the U.S. dollar is likely to surge higher positioning stocks with majority U.S. denominated earnings such as Brambles Limited (ASX: BXB), CSL Limited (ASX: CSL) and QBE Insurance Group Ltd (ASX: QBE) to benefit.

Conversely, a suggestion that the U.S. economy is still not strong enough to withstand another rate rise would defer expectations on a June rate rise, driving the U.S. dollar lower. Benefactors of this move would be ‘safe-haven’ gold stocks such as Newcrest Mining Limited (ASX: NCM).

Foolish takeaway

Whilst macroeconomic data will shape the week ahead, long-term investing is not about buying on short-term trends. Investors should always look at a company’s fundamental operations and simply take advantage of short-term fluctuations for opportune entry points.

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Motley Fool contributor Rachit Dudhwala owns shares of National Australia Bank Limited, QBE Insurance Group Ltd., and Telstra Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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