February 6, 2018

Australian Markets Weekly: 5 February 2018

RBA growth and inflation outlook still on course.


  • The RBA is under the spotlight this week.
  • Tomorrow’s RBA Board to leave rates steady again, with the release unlikely to signal a shift from its neutral policy bias. RBA Governor Lowe speaks on Thursday evening ahead of the Bank’s full quarterly Statement on Monetary Policy released as usual on Friday.
  • Global and Australian economies continue to improve. For Australia, last year’s stellar labour market is a highlight, along with the upturn in business investment. The expected flow through from less spare capacity in the labour market to wages and inflation over time continues as a much-watched theme.
  • Household debt and consumer spending is the one sore point in the local growth outlook, although strong employment growth points to an important underpinning to income growth ahead.
  • RBA’s November growth and inflation near-term forecasts still look “in the money” with the benefit of the September quarter national accounts and the December quarter CPI. The medium-term RBA outlook – this time extended to June 2020 – will also likely continue to forecast: 3%-plus GDP growth, only a gradual reduction in unemployment, and a gradual increase in inflation into the 2-3% target zone.
  • NAB forecasts the RBA to hike rate later this year as further economic improvement unfolds.
  • Last Friday’s US non-farm payrolls report, with its higher-than-expected earnings growth, plays to the notion that wages may be now pushing higher in the US. This week’s eight scheduled post-FOMC Fed speakers will provide further insight.
  • US bond yields pushed higher last week, including on Friday, after payrolls and its upward surprise on average hourly earnings.
  • AUD back closer to 0.79 today. NAB revises AUD forecasts.

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