January 21, 2019
Australian Markets Weekly – February SoMP Preview – a less optimistic RBA
In today’s Weekly we preview what to expect for the RBA’s forecasts and the narrative and risk around its outlook for the economy. We’re likely to see the Bank wind back the growth outlook and trim its inflation forecasts.
- The RBA’s Statement on Monetary Policy (SoMP) is due to be released on Friday 8 February, where the Bank will reveal its updated forecasts for key economic indicators: GDP, unemployment and inflation.
- The growth outlook in particular has deteriorated since November, something the RBA will likely give a further nod to in February. We have seen: (i) some signs of softer consumer spending; (ii) more pronounced falls in building approvals and housing markets; and (iii) deterioration in the global economic and markets back-drop. There’s not that much that has been moving in the other direction, although unemployment remains low, mining is recovering – as is non-mining capex – while defence and infrastructure are forecast to be strong. It’s likely the RBA will downgrade its growth forecast for 2019 and 2020.
- We believe the RBA’s hiking bias is largely dependent on the outlook for consumer spending – a risk the RBA also openly acknowledges – resulting in much less conviction about the next move in rates, moving toward a more neutral stance.
- Global equities ended Friday with solid gains, the S&P500 having its best start since 1987. US factory production expanded in December by the most in 10 months, by 1.1%. In contrast, US Consumer Sentiment in January was down 7.7% from December.
- China has offered to increase goods imports from the US by a combined value of more than $1trn over the next six years to reduce the trade surplus with the US to zero by 2024. The offer has been met with scepticism by US negotiators. This could be good news for US exporters, but perhaps not for other countries exporting to the China. Elsewhere, President Trump offered a compromise to end the government shutdown that was rejected by the Democrats.
- The USD closed last week stronger, outperforming most major currency pairs, also hampering the AUD that failed to benefit from the improvement in global risk appetite. Wednesday’s NZ CPI is often seen as a precursor to Australia’s which is out next week, both very important releases for the RBA and RBNZ and for market pricing.
- The Forecasts page includes our downgraded US growth outlook and expectation of a steady hand from the Fed this year.
- The December Labour Force report is out on Thursday, NAB looking for a solid 25K gain in employment and steady 5.1% unemployment rate (risk of 5%). NAB’s Cashless Retail Sales index for December is out Wednesday and the NAB Residential Property Survey is out Thursday.
- Offshore, after Chinese Q4 GDP and December activity data today, it’s a quieter week for offshore releases, more interest perhaps in the unfolding US reporting season, the ECB and the BoJ are expected to sit on their hands, with continuing interest in Brexit.
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