Amid the peak of the Australian reporting season this week, the advance of Covid Delta – which caused the lockdown of NSW on Saturday; the minutes of the last Fed meeting, and the final data dump from China for July, little old New Zealand holds centre stage this week globally for what many analysts think will be the first significant monetary policy move from any central bank with credibility in the current Covid crisis – an interest rate rise.
While Brazil’s central bank lifted rates 1% at the start of this month it doesn’t have the policy credibility or independence that the RBNZ has.
The key NZ rate is the Official Cash Rate (OCR). It was unchanged at 0.25% at the July monetary policy meeting of the bank.
That’s when the RBNZ halted its purchases of New Zealand government bonds (by July 23, which happened).
However, the central bank maintained its $NZ28 billion funding-for-lending program going which offers banks cash at 0.25% for lending to customers, whereas the same sort of scheme in Australia ended on June 30 with $188 billion advanced.
Then the June quarter unemployment report for NZ showed a sharp fall in the jobless rate to 4% from 4.6% (the market had been expecting 4.4%) as employment rose 1% in the quarter.
That was the trigger the market had been looking for as the RBNZ had previously highlighted the strengthening labour market as a possible future factor for a tightening of monetary policy.
That will come Wednesday with a rise in the OCR to 0.50%, according to market forecasters.
Major NZ banks reckon this week’s increase will be the first of three that will see the OCR at 1% by the end of 2021 – leaving it sharply higher than Australia’s 0.10% until 2024 at the earliest.
The RBNZ decision won’t change anything here, but it’s a sign the Kiwi economy is back to normal, though it has yet to re-open to the world and run the gauntlet of Covid Delta.
But this week will be a start.
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In Australia, the June 30 earnings season and the jobs data for July take centre stage, along with the June quarter’s Wage Price Index but the locking down of NSW will start to overshadow sentiment.
Moody’s economists think the unemployment rate is likely to have risen to 5.3% in July from 4.9% in June, largely due to the harder lockdown in Sydney and parts of New South Wales, as well as Victoria and southeast Queensland.
The AMP’s Dr Oliver says the full impact of the slowdowns “may not fully show up due to the timing of the ABS’ reference period for July so as a result we only expect a loss of 50,000 jobs mainly driven by NSW with unemployment rising to 5% (from 4.9%), but with a much bigger impact showing up in August.”
“Ultimately employment is expected to fall by around 300,000. This is less than the -857,000 jobs lost in April and May last year as not all of Australia is in lockdown, businesses may be less inclined to lay off this time around given the rebound seen last year and only recent talk of labour shortages, and business confidence and job ads don’t seem to have fallen as rapidly as seen last year.”
However Dr Oliver says, “there will likely be a bigger hit to hours worked.”
Wednesday’s June quarter data is expected to show a 0.5% lift in wages (Wednesday) taking annual wages growth to 1.8% – well below the 3.8% inflation rate.
The Australian June half profit reporting season will ramp up with about 90 major companies comprising about one third of the share market’s capitalisation reporting in the week ahead. Thirty-five companies have already reported.
The annual results and dividend news tomorrow from BHP will be the big result of the week (See separate story).
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In the US, comments by Fed Chair Jay Powell tomorrow and the minutes from the last Fed meeting on Wednesday will be watched for any real clues regarding the taper decision.
Moody’s economists say the minutes from the July meeting of the Federal Open Market Committee could provide more information on where the consensus within in the Fed is on tapering—the eventual reduction of the central bank’s $US120 billion in monthly asset purchases.
But the big data news will be Tuesday’s release of the July retail sales data. After their strong rise in June, economists see a slowdown with forecasts for a fall of 0.2%, with the rising tide of Covid Delta infections having an impact.
Tuesday also sees the release of the latest industrial production figures and the continuing strength in home builder conditions (all out Tuesday as well).
Wednesday sees the release of July housing starts figures with a rise forecast.
The New York and Philadelphia manufacturing conditions indexes for August (due Monday and Thursday) are expected to confirm other surveys showing strong activity in manufacturing across most of the US.
The US earnings season is almost at the end of its taper with retailers dominating this week’s reports led by majors, Walmart, Target, Home Depot, Lowes Cos. TJX and department store straggler, Macy’s, along with Ross Stores, and Kohls.
Walmart and Home Depot will be out a couple of hours before the July retail sales data is released on Tuesday. Others reporting include Deere and Co and Cisco Systems.
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In Asia today sees the release of Chinese activity data for July. Dr Oliver says the figures are expected to show a further slowing but still solid growth in retail sales, industrial production and investment with unemployment remaining around 5%.
Recent Covid lockdowns and travel restrictions will impact August data next month.
Japanese data is expected to show a 0.1% gain in June quarter GDP (today) & ongoing weak CPI inflation (Friday) will not be convincing about the health of the ecomony as Covid infection numbers surge in the wake of the Tokyo games.
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In Europe the euro zone’s final estimate for inflation in July will also be released next week, though we are not expecting a difference from the preliminary estimate; inflation should come in at 2.2% y/y.
Moody’s says “base effects, surges in demand, and supply bottlenecks will keep price growth above target throughout the year. However, we expect these forces to dissipate in the medium term.”
