While the first meeting of the year of the US Federal Reserve’s key policymaking committee will grab headlines around the globe this week, inflation will be the focus for Australia with the Consumer Price Index (CPI) for the December quarter and 2015 being released on Wednesday.
As well, central banks will meet in New Zealand and Japan.
The Fed will not change interest rates or its thinking on the economy, although the first estimate of US 4th quarter growth due out at the end of the week is forecast to be less than 1% on an annualised basis which will see a chorus of questions about the need for any more interest rate increases.
In Australia the sharp fall in petrol prices late last year should result in a December quarter CPI reading of around 0.3% quarter on quarter or 1.5% or 1.6% year on year (that’s out on Wednesday), according to forecasts from the AMP and from Commsec economists.
Despite the lower dollar, ongoing discounting by businesses is expected to keep underlying inflation low at 0.5% quarter on quarter or 2.1% year over the year.
The inflation reading is not likely to be low enough to trigger another RBA rate at next Tuesday’s first meeting of the year of the Reserve Bank (unlike in NZ where the country is on the verge of dipping into deflation).
The NAB’s December NAB business survey will be out later today. The business conditions and confidence components have been increasingly upbeat (especially the conditions) for most of the past year.
December quarter export and import prices (on Thursday) are likely to show a further fall in the terms of trade and credit growth data from the Reserve Bank (Friday) will likely show a further slowing in lending to property investors, but continuing strong growth in lending to business.
And there will be a scattering of December 31 profit reports this week. One of the most notable will be GUD Holdings, the consumer electrical products and water business. It reports on Wednesday.
Thursday morning sees the Reserve Bank of New Zealand release its first monetary policy decision of the year on Thursday morning.
Another rate cut would not surprise after the weak December quarter consumer inflation data last week showed a fall into deflation and an annual rate of around 0.2%, which is much lower than in Australia.
In the US the major event is the Fed meeting on Tuesday and Wednesday US time.
The AMP’s Dr Shane Oliver says the “Fed won’t be making any changes to monetary policy but is likely to be dovish in acknowledging the latest downside risks to inflation and support the view that a March hike is now unlikely".
“The US money market puts the probability of a March high at just 22% and the way things are going the Fed its increasingly likely that the Fed will struggle to put through even one 0.25% rate hike this year,” he said.
Apart from the Fed, the focus in the US will shift to the December quarter employment cost index which is likely show that wages growth remains weak at 2.1% year on year and the December quarter GDP growth which is likely to show growth slowing to just 0.8% annualised due to a large fall from inventories (both due Friday), according to Dr Oliver.
In other data expect to see further gains in home prices and little change in consumer confidence (both Tuesday), modest gains in December new and pending home sales and soft December durable goods orders (Thursday).
And the December quarter reporting season steps up this week with a number of major tech companies dominating the calendar – Apple, Amazon, Microsoft, eBay, Facebook and Google.
Good reports from some of these could change the complexion of Wall Street after the rebound late last week. Weak reports could plunge stocks back into another bout of selling.
Eurozone inflation for January (Friday night) is likely to remain very low helped by the latest plunge in oil prices, and employment will show another small improvement.
In Asia, the usual end of month data for Japan will be released on Friday to show continued labour market strength but with some softness in household spending and industrial production.
Core inflation is likely to slip to around 0.8% year on year from 0.9% in November.
Dr Oliver says the Bank of Japan (which meets Friday) "is likely to either provide more stimulus or sound a lot more dovish”.
