The Week Ahead: RBA Agonises

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This story features NATIONAL AUSTRALIA BANK LIMITED.
For more info SHARE ANALYSIS: NAB
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

In the lead-up to this week, it would be fair to say economists are now relatively split on Tuesday’s rate decision from the RBA. There is one camp who believes the RBA will consider it has done enough in tightening policy to date and it’s time to let the market do the rest. Independent rate rises from the banks have also helped. Leading indicators have turned sharply lower, so another increase to 7.5% would be superfluous.

But in the other camp the March inflation numbers remain a shock. And the shock was not just about how high the numbers were, it was about how broad the increases were. It is not just food and oil, although those two elements are definite problems, but almost everything else showed a rise in price as well. One more rate rise will be needed before the RBA can be comfortable, say the hawkish camp, most likely on Tuesday but if not then some time soon when it becomes apparent inflation is not behaving as hoped.

We will all wait with baited breath on Tuesday afternoon then.

There’s no lack of teaser data for the RBA to mull over on Monday, although only the first quarter house price index release is official. But unofficial yet respected releases might even tip the balance – we’d never know. We have the CBA-ACCI business expectations index for March, along with the ANZ job ads data, the CBA-AiG performance of services index, and the TD Securities-Melbourne Institute inflation measure, all for April.

On Tuesday the March trade balance is released ahead of the RBA rate decision.

Wednesday brings the CBA-AiG performance of construction index for April, ahead of the April employment numbers on Thursday. Friday sees the release of the monthly RBA bulletin, which should provide some more expansive clues as to why the RBA did what it did on Tuesday, whatever that was.

There’s plenty for the US to consider this week as well as it basks in the glow of the Fed’s minor rate cut and supposed tea break. Monday kicks off with the ISM non-manufacturing index for April, while Tuesday brings May consumer confidence.

Wednesday is swamped with first quarter productivity, and March pending home sales, consumer credit and unit labour costs. On Thursday it’s March wholesale inventories and Friday the March trade balance.

While the RBA rate decision is an important one locally, internationally the monthly rate decision from the ECB on Thursday will be important under the context of the current strength in the US dollar, which itself is providing buoyancy for the stock market. Once again it is unlikely the Europeans will move in either direction, but the accompanying explanation may be crucial. Were the ECB to cut, the greenback would surge. But it was only last month economists were wondering if the ECB might even raise.

The UK also makes its rate decision on Thursday.

On the stock front in Australia we wrap up half-yearly results from the banks, with St George ((SGB)) reporting on Tuesday and National ((NAB)) on Friday.

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