Australia: Reserve Bank ‘taper’ time?

  • In the coming week the Reserve Bank (RBA) will be front-and-centre of investors’ minds with the Board considering whether to adjust its monetary policy settings, including its yield curve target and bond purchases.
  • The week kicks-off on Monday with the release of the ‘final’ May retail trade figures. Preliminary spending rose by just 0.1 per cent in May with a virus lockdown crimping Victorian sales (-1.5 per cent), but sales were 1.5 per cent higher in both Queensland and Western Australia.
  • Also on Monday, an eclectic mix of data is scheduled for release. Council approvals to build new houses are expected to straddle record highs in May. And demand for new motor vehicles for business and private use is likely to strengthen in June due to end-of-financial-year sales.
  • The Melbourne Institute inflation gauge and the ANZ measure of job advertisements for June is also issued on Monday, providing a timely mid-year update on labour demand and pricing pressures in the economy.
  • On Tuesday, the RBA takes centre-stage when the Board hands down its monetary policy decision at 2.30pm AEST. Policymakers have already flagged in previous communication that they may adjust their 3-year government bond yield curve target and bond buying program.
  • Commonwealth Bank Group economists expect the RBA to keep the 0.1 per cent yield curve target pegged to the April 2024 government bond. And CBA economists favour the Board announcing a $50 billion bond buying package over a six-month period, constituting a slowing or ‘tapering’ of purchases. That said, virus lockdowns across the country will likely encourage the Board to remain ‘dovish,’ given increased uncertainty about the economic outlook.
  • Also on Tuesday, RBA Governor Philip Lowe provides an explanation for the Board’s decision at 4pm AEST.
  • And ANZ and Roy Morgan jointly issue the weekly consumer confidence survey on Tuesday. Sentiment has been constrained in recent weeks in response to virus flare ups across the country. And the Bureau of Statistics (ABS) issues the weekly payroll jobs and wages figures for the fortnight to June 19, 2021. Payrolls fell at the beginning of June due to Victoria’s lockdown, which impacted jobs in the Accommodation and food services industry.
  • On Wednesday, the ABS publishes jobs-related data for February with underemployed workers in focus.
  • On Thursday, RBA Governor Philip Lowe gives an online speech at the Economic Society of Australia at 12.30pm AEST.

Overseas: Summer lull 

  • It’s a ‘data-lite’ week in the US with the Independence Day public holiday observed on Monday. US financial markets are closed for trading. The US Federal Reserve Open Market Committee’s (FOMC) June 15-16 meeting minutes will be the highlight along with Chinese inflation figures.
  • The week kicks-off in China on Monday when Caixin releases its services and composite indexes for June. Both indexes expanded for a 13th successive month in May with input prices at the highest level since December 2016.
  • On Tuesday in the US, the usual weekly Johnson Redbook chain store sales figures are released with services purchasing managers’ indexes from both IHS Markit and the Institute of Supply Management (ISM). The ISM gauge could remain at record highs of 64 in June. There has been a rapid pick up in US business activity as vaccination rates lift and the economy re-opens. Readings above 50 denote an expansion in activity.
  • On Wednesday, the usual weekly mortgage application figures from the Mortgage Bankers Association are scheduled alongside the Job Openings and Labor Turnover Survey (JOLTs) for May. The number of available positions is expected to hit an historic high of 9.3 million. In April, the number of people who voluntarily left their jobs increased to 4 million. And the quits rate rose to a series high (since December 2000) of 2.7 per cent.
  • Also on Wednesday, the FOMC issues the minutes of its June 15-16 meeting. Fed officials left the target range for the federal funds rate unchanged at 0-0.25 per cent. But in its ‘dot plot’ forecasts, 11 of 18 policymakers signalled two rate increases in 2023. And several officials expect to increase the federal funds rate in 2022.
  • On Thursday in the US, weekly data on claims for unemployment benefits (initial jobless claims) is issued with consumer credit figures.
  • On Friday in China, inflation data is scheduled for June. Producer prices grew by a 9.0 per cent in May from a year earlier, the strongest annual growth rate since September 2008. The surging cost of imported commodities drove factory gate inflation higher with oil, metals and chemicals prices all lifting. Chinese factories continue to absorb higher input costs.  Annual consumer price increases are likely to remain below 2 per cent for most of 2021 amid sluggish household demand for discretionary goods.
  • On Friday in the US, May readings on wholesale trade sales and inventories are scheduled.
  • And in China credit growth data is scheduled during the week.

Originally published by Ryan Felsman, Senior Economist, CommSec