The Week Ahead: Focusing On The Odds

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By Greg Peel

Dominating the calendar this week will be the RBA meeting on Tuesday at which the majority of the market expects a decision will be made to raise rates. The decision will be posted on Wednesday.

While expressions such as “fait accompli” and “lay-down misere” have been bandied around over the last month, there has been something creeping in that FN Arena has labelled “drought doubt”. Inflation is still above the comfort level, and employment is still surging, but as the true extent and impact of the drought has come into focus, there is a little doubt forming that suggests the RBA may yet focus on the undermining of GDP growth in FY07.

There is also concern that as the housing market continues to falter, can Australians carry the load of another hike?

Hence odds of 100% have fallen to levels of 85% in some economists’ expectation, so while a rate rise is still the favourite, don’t write off the outsider, that old stayer Unchanged.

Hot on the heels of the RBA’s announcement will be housing finance numbers on Wednesday and labour figures on Thursday. Commonwealth Research joins others in believing the August rate hike will show up in weaker housing numbers – predicting down 6% following August’s down 1% – but that employment will remain robust.

Today sees the release of TD Securities’ inflation measure, along with the ANZ job ads data. Building materials will be in focus as results come in for CSR (CSR) on Wednesday and Rinker (RIN) on Thursday.

Three labour numbers are released in New Zealand this week, and expectations are for increased labour costs and increased unemployment due to a decline in economic growth. Traders will likely position for another rate hike.

There’s a lot of data coming out in the US, but the only measure of note will be the University of Michigan consumer confidence survey on Friday. In the meantime, Fed members are out and about, including Bernanke, making a total of six speeches.

Wednesday sees the Bank of England meeting to decide on a rate hike. A 25bps move to 5.00% is expected.

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