It’s the start of a new month, which means a packed week of data both at home and around the world.
We have another RBA Board meeting and the chance of a cut is high. Q4 Australian GDP is out Wednesday and the week will end with the release of the globe’s most important monthly data point in US non-farm payrolls.
Once again these events are likely to be overshadowed by Australia’s political travails as the questions over Tony Abbott’s position as prime minister continues.
Politics is also important this week with Treasurer Joe Hockey releasing the Intergenerational Report (IGR) on Thursday. The IGR will be the 4th in the series and is the opportunity for the Government, and particularly Hockey, to explain why its tough budget approach remains necessary.
Produced by the federal Treasury, the IGR is important as a policy-shaping tool because it makes a number of assumptions on important economic and demographic trends for the next four decades. These are then fed into a model of the future “to determine the impact on the revenues and expenditures of the Australian Government Budget under the assumption that current policies remain unchanged over the relevant 40-year forward period.”
The whole point is to show whether or not current settings are fair for the generations to come.
Foreshadowing the IGR on Sunday, Abbott said that “we have a big budgetary challenge, a very big budget challenge but a very substantial start has been made”.
The message of the IGR is fundamental to making the case for change. This is a case that could and should have been made before the shock of last year’s budget. So it gives a genuine opportunity for the government to reset, explain and execute their agenda. After all, the next budget is now just two months away.
Turning back to the economic calendar and RBA rate cut and the Q4 GDP dominate this week. While traders’ reaction to a material deviation from the market’s 0.7% expectation for Q4 GDP will be swift, the reality is the RBA is far more important.
That’s because GDP is backward-looking. The RBA has already cut once since the national accounts for 2014 were closed off, but it is likely to cut again on Tuesday. So traders will be seeking a guide to the future. To this end Westpac Chief Economist Bill Evans says the RBA should follow “the best policy is to cut by 25bps in March and adopt a clear easing bias.”
Offshore Monday is full of HSBC and Markit manufacturing PMIs around the globe. Personal income and spending in the US is vitally important to the outlook for the economy.
Tuesday a speech by Janet Yellen will dominate global markets while Wednesday a raft of HSBC and Markit services PMIs will be released around the world.
Thursday’s retail sales in Australia are vitally important. Offshore the ECB and BoE meeting will take place.
Friday we get the big one with the release of US non-farm payrolls. This is the key statistic driving Janet Yellen and the FOMC toward a tightening this year. The market is looking for a print of 240,000 jobs for February to follow January’s 257,000. In many ways this one data release will set the tone for the rest of the month.
Now here’s Westpac’s excellent calendar of all the week’s key data and market events.