Josh Gilbert, market analyst at eToro, shares his three things to watch in Australia in the coming days.
1. RBA rate decision
Australia’s Central Bank will meet for the second time this year and it is once again expected to leave the cash rate unchanged at 4.35%.
The data that the RBA has received this year, especially inflation data at the end of February, has reinforced that the board is done hiking. However, there may not be enough evidence just yet for Michele Bullock to pivot to an easing bias.
Consumers and households are clearly struggling, but inflation remains the biggest fight for the RBA, and that’s why we’re likely to see the governor keep a stern tone next week.
Markets still see June as the first meeting when the RBA is likely to cut interest rates for the first time in 2024. This meeting will be the last meeting until May and before then, the RBA will receive a wealth of data, including February and March monthly inflation indicators, as well as the all-important Q1 figure.
That pens May as the meeting where we may begin to hear some softening in the language from the RBA, given a cut may be just around the corner. The board’s hiking cycle is having evident effects on the Australian economy, and that’s why markets are penning June for the first cut.
2. US rate decision
Last week’s hotter inflation print tells us that January’s upside surprise was not an anomaly. However, investors looked past that number and were more focused on markets still pricing in the first Fed rate cut for June this year, sending US Stocks back to record highs. That’s because the reading showed good news on services inflation; an area of inflation Jerome Powell has fretted over in recent times.
However, the worry for investors will be that two higher-than-expected prints might trigger a “higher for longer” approach from the Fed.
The ‘headline’ downtrend in inflation seems to be stalling for now, and the Fed would like to see it continue to move lower before easing rates. Given that rates are highly likely to stay on hold, the focus shifts to Jerome Powell’s comments, and I wouldn’t be surprised to see some pushback, which could put the US stock rally on ice.
The Fed will also update its US economic growth projections this week, which include forecasts for gross domestic product growth, unemployment, interest rates and inflation.
3. AU unemployment
Unemployment rose to a two-year high of 4.1% last month as capacity in Australia’s job market grows. Demand for workers is falling, with Australia’s ANZ-Indeed job advertisements report showing ads were down 12.4% year-over-year in February and down 2.8% from January 2024.
This week, unemployment is set to stay at 4.1%, with the expectation that it will grow to 4.3% by Q4 2024. The growing unemployment rate remains one of the key drivers for the RBA to cut rates in the middle of the year.
However, a jump in employment outside of the RBA’s projection of 4.3% may be a slight worry for the RBA and would be a huge dent in consumer confidence if it continues to move at the same speed.
Ultimately, the labour market is loosening in Australia, which is good news for rate cuts, and the RBA will want some evidence next week that new jobs are being added. The good news is that expectations next week are for a big jump in new employment which should help keep the balance on employment for now.