The key event for all local markets this week is the Reserve Bank board meeting tomorrow and subsequent rate decision at 2.30 pm.
The only point of interest is; will the rate rise be 0.25% or 0.50%, as a few commentators are now suggesting (after being completely fooled last month and not anticipating a likely board discussion of a 0.50% rise at the February 5 meeting).
It wasn’t until the minutes of that meeting were released on February 19 that we had any idea of the debate on the board about a bigger rate rise: even if the discussion and its release was designed to bolster the hawkish approach of the bank to inflation and monetary policy.
Now a few commentators aren’t missing that one again and on Friday and over the weekend, were canvassing a possible 0.50% rise, just to be on the safe side.
Commentators like Rory Robertson at Macquarie Bank believes the rise will be 0.25% simply because the bank is loath to go to 0.50% for fear of exhausting its future options.
The AMP’s chief strategist, Dr Shane Oliver says the focus will again be on the Reserve Bank’s Board meeting and is very likely that the Bank will again increase the cash rate another 0.25%, taking it to 7.25%.
The money market has priced in an 88% probability of such a move, he says. The way the surveys of business economists are going, the consensus is almost total, if not 100% so.
That’s become more certain after the Bank’s Statement on Monetary Policy and the minutes from its last meeting highlighted they way had become very concerned about the inflation outlook and wanted to see a sharp slowdown in demand.
Dr Oliver said " This will be the 12th rate hike since this tightening cycle commenced in May 2002.
"Unfortunately for home borrowers ongoing problems in credit markets suggest that there is a high likelihood that some banks will follow this up with a slightly greater increase in their lending rates.
"Our concern remains that the RBA will go too far and in the process tip many households over the edge."
And to make sure we get the point of tomorrow’s decision, the Reserve Bank is sending out two of its three heavy hitters to make speeches on Wednesday, the day after the rate decision.
RBA Assistant Governor (Economic), Dr Malcolm Edey speaks Wednesday in Sydney on the Evolving Economic Outlook at 9.30 am, and Dr Guy Debelle the Assistant Governor in charge of Financial Markets, speaks on recent changes in the Australian Bond Market at 2 pm. Both will no doubt make a point or two and be chased by the media for additional comment.
Figures out on Friday from the RBA for January show that housing finance was again unchanged in the month there was a small rise of 0.8% for an annual rate of 11.6%, close to a 9 year low and the same rate now for five months in a row. Personal credit eased, falling 0.3% in January with the annual rate dropping to 11.9% from 13.7%.
Business lending though jumped to a 24.4% annual rate in January from 24.3% in December as more businesses put their loans and other credit business with the banks and withdrew from direct involvement in the markets.
So far the bank has mentioned a forecast of unemployment or job growth over the next year: it has falling growth forecasts in the market and rising inflation, but no mention of an unemployment ate: when that happens, watch the sparks fly. A realistic forecast of an unemployment rate will be the big test of the honesty of the May Federal Budget as well.
As well as the rate decision, Wednesday sees the National Accounts for the December quarter and for 2007: they will include all the GDP growth figures, income and expenditure Australian, profits, inventories and implicit inflation. (There is another version of some of these figures out today in the Indicators for December). On top of these we will also get the Retail Sales and the Building Approvals for January, will one be up again (retail sales) and the other down (Building approvals). The trade balance for the December quarter will also be released.
Dr Oliver estimates December quarter GDP growth is likely to come in at 0.7% quarter on quarter or 3.8% year on year.
In the US, the key Institute of Supply Management manufacturing business conditions survey for February is expected to fall back below the key boom/bust level of 50 consistent with other recently released business surveys. That will link well with last week’s Consumer Confidence report for the US for February showing a sharp slump. US payroll and employment figures on Friday through will be the big news.
Will February see a repeat of the January loss of jobs: will January be revised like December and November were late last year?
The betting is for more job loses and for the US unemployment rate to hit or top 5.0%.
Data for construction spending, home sales and the ISM services sector survey will also be released.
Companies in the S&P 500 scheduled to report earnings next week include Costco Wholesale Corp., America’s largest warehouse chain, and H&R Block Inc., the nation’s biggest tax preparer. Wal mart is due to post February sales figures on Thursday.
It’s a big week on the interest rate front with central banks in Australia, Canada, New Zealand, the Euro-zone, the UK and Japan all meeting to discuss interest rates.
MONDAY:
Australian industry group/PricewaterhouseCoopers Performance of Australian Manufacturing Index for February,. Asciano interim profit figures. Australian Bureau of Statistics Business Indicators for December. Reserve Bank Commodity Price Index for February.
TUESDAY:
Reserve Bank board meets; Reserve Bank interest rate decision at 2.30 pm. ABS figures on the Balance of Payments and International Investment decision for December quarter, Government Finance figures for December quarter and Retail Trade figure
