Place your bets folks. One of the biggest weeks on Australian markets is coming up with the release of the important early month data as well as the RBA’s most anticipated board meeting in years and Scott Morrison’s equally important first budget.
Globally it’s PMI week when traders take the pulse of the world’s manufacturing and services industries and of course, the big daddy of data is out Friday night Australian time with the release of the latest update of US non-farm payrolls.
But as well as the data and events, traders are grappling with market moves themselves. The yen has strengthened below 1.07 for the first time in years, the Euro is above 1.14, and the Australian dollar threatens to go rocketing to, perhaps through, 80 cents if the RBA doesn’t deliver a rate cut on Tuesday.
Stock traders are on the back foot with the recent market recovery stalling over the past week with traders once again becoming jittery. That’s despite a surge in commodity prices which many thought would lift the pall off the markets.
In many ways it did but stocks and the US dollar selling off when things are improving just reinforces to many that something is amiss in markets at the moment.
Will the RBA cut or not this week? Apparently the difference between a solid professional poker player and a very good amateur is weighing up the 60:40 and 40:60 bets. This week we’ll get to see who the really good poker players are in the Australian economics community when the RBA governor announces the board’s decision on interest rates at 2.30pm AEST Tuesday.
This time last week pretty much no one expected this month’s meeting would see a rate cut. But the headline CPI print of -0.2% for the first quarter and the continued collapse of the year-on-year headline and core inflation rates was a game changer for RBA forecasters. So far, around 8 or 9 economists have joined Goldman Sachs and Capital Economics who have for many months been saying rates were headed lower in Australia.
But the rate cutters are still in the minority with many believing that falling inflation gives the RBA room to cut should the economy need it. They say the RBA will hold fire with solid business conditions, a very healthy jobs market as well as a much higher starting point for the year after Q42016 GDP printed a 3% year-on-year rate.
On the other side of the debate, the rate cutters say the RBA has nothing to lose by letting rates fall again to stoke the fires of the economy a little further. Inflation is not an issue but growth and a stubbornly high Australian dollar are. A rate cut might help a little with both and ensure Australia doesn’t fall into the global low inflation and zero rates club.
If the RBA has learnt anything since July 1996 when then RBA governor Bernie Fraser took a risk and cut rates, it is that when they act decisively, they and the economy have been rewarded. So I’m betting my hand with the rate cutters.
Scott Morrison’s first budget is the most important budget delivery in years. It’s a truism that the Australian budget is not normally a big deal for financial markets. Gone are the days when a speech by the Treasurer, whoever it was at the time, would move the Aussie dollar or interest rate markets, impact foreign investors views on the economy and its finances, or had a material or lasting impact on what foreign investors thought about the country.
At least that is how it’s been for the best part of the last 20 years.
But treasurer Morrison’s effort Tuesday night, just 5 hours after the RBA governor announces the decision on interest rates is potentially a huge market mover.
That’s because credit rating agencies are focused on Australia’s debt and deficit positions with an eye on both as a threat to Australia’s coveted AAA rating. That means traders and investors, both here and abroad are also watching. That in turn, means the government’s economic, revenue, and expenditure forecasts are going to come under more than the usual level of scrutiny as financial markets sniff test them.
And of course with the RBA releasing its own forecasts in its quarterly Statement on Monetary Policy next Friday, traders, investors, and the ratings agencies will be comparing both documents to see if the central bank and treasury are in accord.
Australian Calendar — (courtesy NAB Economics, our emphasis)
After the April NAB Business Survey Monday, all eyes will then be on the RBA Board meeting on Tuesday. Will they cut? We think so.
Then the Federal Budget Tuesday evening. Other key data also due: Building Approvals Tuesday, Trade and Retail Sales Thursday as well as HIA New Home Sales Thursday and the AiG PMI data set starting with the PMI Manufacturing release Monday and the CoreLogic RP Data April home values report Monday.
The week concludes with the RBA Statement on Monetary Policy on Friday, with particular focus likely on the RBA’s new inflation and growth tracks.
International Calendar (also courtesy NAB Market Economics)
US: the week ahead has the ISM releases (Manufacturing Monday, Non-manufacturing Wednesday) and the biggie, non-farm payrolls Friday. Other data includes ADP Employment, Trade and Productivity/ Unit labour costs, and factory orders Wednesday, and weekly jobless claims Thursday.
And, is the civil war inside the Fed still raging on whether rates are on hold for a while or about to be raised? We’ll get a good feel this week as there are around a dozen Fed speakers on the schedule.
China: Official PMIs were released over the weekend and missed to the downside by a small margin. Is this the end to China beating market expectations? It’s far too early to tell but traders will be watching the release of Caixin Manufacturing PMI Tuesday, then the Caixin Services/Composite PMIs Thursday. Important trade data is due out next Sunday.
Euro: Retail sales in a light week with updated April PMIs also due.
UK: Manufacturing PMI Tuesday and Service/ Composite PMIs Thursday.
Canada: Trade Wednesday, Building Permits Thursday ahead of the key labour force report Friday along with the Ivey Manufacturing PMI.
NZ: First up is the early Wednesday morning Global Dairy Trade auction ahead of an action-packed Wednesday, centred around the Q1 labour market reports. Also Wednesday is the Quotable Value NZ housing report and ANZ commodity prices.
Here’s the NAB’s excellent calendar of all the key data and events: