It’s a huge week for Australian markets with the RBA’s interest rate decision and governor’s statement on Tuesday, retail sales and the quarterly NAB Business survey Thursday and then the RBA’s quarterly Statement on Monetary Policy on Friday. That night, to cap off the week, we get the US jobs report.
There’s also important data out of China, Japan, Europe and the US on the health of manufacturing via the PMI releases. Markets will continue to debate the health of the global economy and the outlook for global stock and bond markets.
But arguably the biggest event for Australia, and traders and investors, is the Prime Minister’s appearance at the National Press Club at Lunchtime Monday.
In the wake of the Queensland election and the devastating swing away from the LNP which has propelled Labor and Annastacia Palaszczuk from just 9 members in the House to a confirmed 43 seats, just 2 short of the outright majority needed to form government, the pressure on the Prime Minister is growing.
The wipeout in Queensland has only served to escalate the concerns in the Liberal party that it is losing the confidence of voters. Many Liberal MPs are actively agitating for a change in the leadership, with some even saying that it’s now a matter of timing and the manner of Abbott’s departure.
Abbott’s address to the National Press Club Monday and the Special Cabinet Meeting Tuesday loom as critical factors in shaping perceptions of his grip on power.
We’ll cover the story as it evolves this week.
In the meantime the debate continues over whether or not the RBA will cut rates on Tuesday. Bloomberg reported that only 6 of the 27 economists surveyed said the RBA would cut this week. However, an increasing number of economists have switched their view and are expecting rate cuts, just perhaps not quite yet.
That type of validation, and the market pricing that this puts into the curve, increases the likelihood the RBA WILL cut rates. It’s just a matter of when and the move in market pricing is one of the primary reasons Westpac Chief Economist Bill Evans retains his call the RBA will cut this week.
On Friday Bill wrote:
Finally we have the signal from the yield curve. Figure 1 shows that the past four easing cycles have all been coincided with the 10 year bond rate moving close to the overnight cash rate. Long bond rates around the cash rate indicate that policy is unnecessarily tight.
Central banks could argue that in the era of QE the bond rate is not sending reliable signals about the outlook for growth and inflation although that would be a risky approach given the time honoured reliability of the yield curve shapes in that regard.
Which ever way the RBA goes, it gets a chance to explain twice next week both at 2.30pm Tuesday, with the release of the statement accompanying the cash rate decision, and then again at 9.30am Friday when the RBA releases its detailed forecasts and snapshot of where it sees the economy at the moment.
It seems almost guaranteed they have, along with almost every other central bank on the planet, downgraded their near term outlook for growth.
Rate cuts are coming, its just a mater of time.
Questions are starting to be raised about the timing of the Fed’s first hike in US interest rates with recent data a little weaker than expected. Take Friday’s Q4 GDP release which printed a growth rate of just 2.6% against expectations of a 3.3% annualised pace and down from Q3’s 5% pace.
It’s an uncertain world in markets, and it seems the political outlook in Australia is volatile.
Here’s Westpac’s excellent calendar of all the big market news and events for the week.
It’s going to be huge.
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