The Week Ahead: Decisions, Decisions

This story features NEWS CORPORATION. For more info SHARE ANALYSIS: NWS

By Greg Peel

The RBA will make its rate decision on Tuesday. Despite a sudden raft of rather poor economic data, economists are not expecting the committee will act spontaneously. While opinion is building that the RBA will need to cut rates some time before the end of 2008, the central bank is still keeping its eye on inflation, the terms of trade and wage costs. If Thursday’s monthly employment data show a jump in unemployment, October will firm as a likely candidate for a rate cut, following the September quarter CPI release.

The rest of the world is now eyeing off an Australian rate cut as well. The Aussie dollar fell rather precipitously on Friday last, taking it into the US$0.92 range. It was only a few weeks ago we were challenging US$0.99.

The Fed then makes its rate decision on Tuesday night, and again consensus suggests it will remain on hold. The financial sector has stabilised somewhat since the government’s offer to rescue the mortgage lenders, suggesting a rate cut is not as necessary as it might have been, while the oil price has been coming down, so a rate hike does not appear to be on the cards either. However, borrowing at the Fed’s emergency windows hit record levels last week, which will have the committee concerned.

The Bank of England makes its decision on Thursday night, and given the last vote was split three ways – cut, hold, hike – hold may win again. But the UK housing market is looking decidedly dodgy, and with a lower oil price, who knows? But the ECB also makes a decision on Thursday, and it is still worried about a high level of inflation. Despite clear signs of a weakening European economy, economists would not put it past the ECB to make one more hike to 4.5%. For unlike the Fed, the ECB is only charged with controlling inflation – not economic growth. A hike could trigger renewed weakness in the US dollar.

Australia’s week begins on Monday with the release of the ANZ job ad figures for July, and the second quarter house price index. Tuesday is rate day, and the AiG performance of services index for July is released. Wednesday is the AiG performance of construction index, and July housing finance. The week wraps up on Thursday with the all-important July employment data. Given the RBA is very worried about a wage-price spiral (as is the rest of the world), an increase in unemployment would go some way to easing those fears.

Australia also sees another week of half and full year earnings results. Highlights this week include Axa Asia-Pacific ((AXA)) and News Corp ((NWS)). All details are available in the FNArena calendar.

Monday in the US sees the June personal income, spending, and core personal consumption expenditure data, along with June factory orders. Tuesday is rate day, along with the July ISM services index. Then there’s nothing much to fret about until Friday, which brings June wholesale inventories, and the second quarter productivity and labour cost data.

The BoE and ECB, as noted, make their rate decisions on Thursday.

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