Josh Gilbert, market analyst at eToro, shares his three things to watch in Australia in the coming days.
RBA meeting minutes - Tuesday
Only a month ago, the RBA appeared to be in a position where rate cuts were firmly off the table for the year, with nothing but pauses likely to define the rest of 2024. Analysts were still paying close attention to RBA meeting minutes and Governor Michelle Bullock’s public addresses for indications of a hawkish tone but hardcore speculation on which way the rate calls may go were diminished to whispers.
That seems like a long time ago now, as inflation has come back much hotter than expected and frazzled homeowners are once again staring down the barrel of a potential hike as close as August.
The RBA now finds itself in an awful situation where both the general public and hardcore economic analysts alike believe its strategy has been a failure from conception – although there is little consensus between both groups on whether the central bank should have been more or less aggressive.
Tuesday’s meeting minutes will be a key insight for the rest of the year ahead and we may see Bullock adopt a much more hawkish tone than she has in recent addresses. This is especially true if she wishes to establish the expectation of more than one raise before the year’s end.
However, the board is unlikely to let one CPI reading drive policy and, therefore, next month's quarterly CPI and employment readings will be more important than ever ahead of August’s rate decision.
Jerome Powell speech - Wednesday
While Australia contends with the potential of another hike, the US is nearing closer to a rate cut. We might get a slightly better understanding of how close that cut might be this week when we hear from Jerome Powell on Tuesday. At the start of June, both headline and core inflation cooled from the previous month, with gasoline, new vehicles and airfares seeing the biggest declines.
Although inflationary pressures remain in the US, the trend is that inflation is moderating, giving Jerome Powell and the board the freedom to cut interest rates this year. He has already pointed out in previous speeches that the US economy has made strong progress while the labour market is now in better balance.
There’s no doubt that Powell won’t be in a rush to start celebrating just yet, but for now, data points do seem to be moving in a favourable direction for the Federal Reserve governor.
A speech from Jerome Powell is always a key risk event for investors and, therefore, one to watch this week. His comments have a clear impact on markets globally. Although there isn’t likely to be anything groundbreaking in his speech this week, there still may be volatility in markets.
Retail sales - Wednesday
Last week’s unexpectedly high CPI reading has shaken markets and households alike and while sometimes increased inflation can be seen as an indicator of a healthy retail environment, with hearty spending heating up the economy, it’s unlikely we’ll see that in action in this week’s retail sales data.
The CPI is often driven up by consumer goods that are vulnerable to volatile price changes like automotive fuel, fruit and vegetables, and holiday travel – and the rising costs of essential goods is a much more likely culprit here, meaning that this month’s retail sales reading will probably fit the month-on-month trend of sluggish activity on main street as supermarkets, bills and the petrol pump continue to squeeze household budgets.
In fact, the latest KPMG Australia Retail Health Index did not forecast positive health in the sector until September 2025 and with rate hikes well and truly back on the RBA’s agenda, even that far-off milestone could slip over the horizon.
There’s still another CPI reading between now and the next RBA rate call, so for households praying for relief (or just less bad news), nothing is yet set in stone.
We have just crossed over into a new financial year, so next month’s retail sales data may paint a slightly more reassuring picture for retailers on-the-ground, with big deals on home entertainment and office goods likely to have motivated even frugal families to splurge a little.
This may provide relief for small-to-medium businesses barely hanging in there but it could also be enough to light further fires beneath the CPI reading.