RBA to test the Aussie’s resolve
After a two month hiatus, the governing members of the Reserve Bank will reconvene on Tuesday to deliberate on interest rates. Although economists widely expect no change to the official cash rate, the local data flow since the December meeting has – to a degree – reinforced the case for Stevens and the board to lean towards further policy easing this year.
Although the ensuing statement may acknowledge improvements in the global economy – particularly that of the Euro region and United States – the domestic data pulse remains faint. While we anticipate this sentiment to be expressed in the statement, the chances of the board taking immediate action and taking the cash rate deeper into accommodative territory appear slim. They have in the past expressed a need to wait until previous cash rate concessions to penetrate the broader economy, and we are likely to see this point reiterated.
December’s meeting minutes showed the decision to cut was carefully considered, with the board questioning whether to respond immediately or wait for further information. This suggests December’s rate cut was – in part – a preemptive strike, and while most would agree the move was appropriate, it diminishes the chance of a follow up rate cut. Stability from both sides of the Atlantic, stronger Chinese data and stronger commodity prices also support the case for the RBA to hold on Tuesday. Still, pundits and punters will no doubt scour the statement for any clues on where the bank see’s the balance of risks in 2013 and Aussie will be the first to react.
Among other important indicators, investors will be watching key data points such as Wednesday’s retail sales, Chinese CPI and Thursday’s official employment release.
Key economic events
Monday – TD securities Inflation gauge | Building Approvals | ANZ job ads | AIG performance of Service Index
Tuesday – Trade Balance | House Price Index | RBA Policy Decision
Wednesday – Retail Sales | AIG Performance of Construction Index
Thursday – NAB Business Confidence | Employment Change
Tuesday – HSBC Services PMI
Wednesday – Trade Balance | Consumer Price Index | Producer Price Index
U.S jobs data inspires rally
Well at least this headline was true for U.S equities last week, with the S&P 500 recording its strongest day in a month. The much anticipated non-farm payroll data was the main event, and although the official unemployment rate ticked up from 7.8 to 7.9 percent, positive revisions to jobs growth in 2012 provided the inflection point need for investors to look on the bright-side. The U.S economy added 157,000 new jobs in January from a revised 196,000 in December – short of the 170,000 expected. Still, the big picture drove U.S stocks six-year highs on Friday with investors suitably encouraged by an additional 335,000 more jobs in 2012, bringing the average up to around 180,000 per month.
While the 2012 revisions were encouraging, it would seem markets may have also found some solace in the uptick in the employment rate, given it implies the Fed will maintain easy policy for longer.
(The Fed recently adopted new policy guidelines, with interest rates set to remain in an exceptionally low range (currently between 0 to ¼ percent) until the unemployment rate is below 6.5 percent and/or inflation is above 2.5 percent.)
Stronger than expected ISM manufacturing and consumer confidence data also kept the momentum to the upside with the S&P500 finishing up 1-percent on the day.
Key economic events
Monday – Factory Orders
Tuesday – ISM Non-manufacturing Composite
Thursday – Weekly jobless Claims | Consumer Credit
Friday – Trade Balance | Wholesale Inventories