Yet another week where things economic will dominate. Instead of in the US, Asia and Europe, it’s at home with the monthly Reserve Bank board meeting tomorrow and the afternoon rate announcement and statement.
The RBA also releases its quarterly Statement on Monetary Policy on Friday which will contain new forecasts for inflation for the next year to 18 months.
The minutes of the April 1 meeting revealed that the board now thought that the inflation forecasts would be lowered, but that was before the surprisingly strong nature of the March quarter’s Consumer Price Index, although building approvals were very weak in March and retail sales were moderate to mixed for the same month.
While the March quarter CPI was well above target on the headline and RBA’s own core measures, the bank will leave rates steady because it will want to see what the Federal Government does in the 2008-09 budget the following Tuesday.
If it crimps spending at less than inflation, especially recurrent spending and keeps one-off spending tight, the bank will be encouraged not to move.
Interest rates have already increased significantly this year because of the RBA’s two increases and another 0.35% (on average) increase by the banks in mortgage and other rates.
So long as there’s convincing evidence that demand is easing and the economy is slowing, rates won’t rise.
But remember that the recovery in share prices will be a test, as will the Origin bid from BG of Britain, if that sparks a feeding frenzy among gas companies and pumps in billions of dollars in cash.
The RBA is already worried that the improving terms of trade will pump in more money into an economy that while cooling, is still doing better than the US, European, Japanese and New Zealand economies.
That’s why the Statement on Monetary Policy on Friday will be closely examined for clues on the bank’s latest thinking.
The previous statement in February and the Minutes of the February board meeting sparked the lift in anti inflation rhetoric from the bank, which backed it with another rate rise in March and more tough commentary.
Figures for house prices for the March quarter (the House Price Index), the trade balance (will we see any improvement, or another uncomfortably large number for April?)And employment will also be released this week.
Interim profit results from St George and the National Australia, and later today fertiliser group, Incitec Pivot which is bidding for Dyno Nobel and which is expected to produce a very large rise in profits because of rising prices for its products here and in Asia and the rest of the world. IPL shares have risen strongly since hitting the $130 mark in the wake of the Dyno bid. They closed around $171.50 on Friday.
The bank results will also be watched closely, although if the ANZ and Westpac results are anything to go by there are unlikely to be any major shocks. But the nature of bad debt provisions, especially specific provisions at the NAB, will be watched closely. It can’t be confident about its British banking operations where the mortgage market is crumpling and house prices falling.
In the US, the ISM services sector survey along with data for unit labour costs, March pending home sales and March trade will be released.
Interestingly the US Federal Reserve appears ready to make some important points to the market this week. Fed Chairman Ben Bernanke is scheduled to speak tonight, our time in New York. He will be talking on mortgage delinquencies and foreclosures. Tuesday night, our time, another Fed member, Fed Reserve Bank of Kansas City President Thomas Hoenig will speak in Denver and on Wednesday night, our time, Fed Governor Randall Kroszner is scheduled to speak in Cincinnati, Ohio.
The European Central Bank and Bank of England are both expected to leave interest rates on hold, despite mixed economic conditions. Inflation is still a worry and the UK central bank cut rates last month.
MONDAY:
Australian Bureau of Statistics house price index for the March quarter; Australian Industry Group/Commonwealth Bank Index of Performance for Services for April; ANZ Jobs ads series for April: Incitec Pivot interim results.
TUESDAY:
Reserve Bank board meets, Sydney; interest rate announcement 2.30 pm; St George Bank interim results.
WEDNESDAY:
David Jones third quarter sales figures; Australian Industry Group/Housing Industry Association Performance of Construction Index for April.
THURSDAY:
ABS labour force figures for April; News Corp third quarter results Sydney/New York; Victorian State Budget; Straits Resources AGM, Perth.
FRIDAY:
RBA’s second Monetary Policy Statement of 2008; NAB interest results; Minara Resources AGM, Perth.
