Local markets will be watching the Reserve Bank closely this week for an update on how the country’s main economic policymakers view the coming year – by all accounts it will be more upbeat than it was for much of 2020.
It’s a week of firsts for the central bank. Tomorrow sees the first monetary policy meeting of 2021 for the Reserve Bank, Wednesday sees the first speech of the year from Governor, Philip Lowe and Friday sees the first Statement on Monetary Policy for the year which will flesh out the post-meeting statement from Dr Lowe and then his speech.
Tomorrow’s meeting won’t change interest rates but it might signal changes to the Term Funding Facility to banks and perhaps signal that it will continue its yield management operations up to three years, for as long as it takes – but the $100 billion targeting of the 10 year bond yield will probably taper from April onwards.
There has been a lot of ‘good’ data recently indicating the Australian economy ended 2020 solidly which will be supported by final trade and retail sales data this week for December as well as a solid set of building approvals for December and 2020.
Jobs data is positive as well and there are signs that the current December reporting season will show a better than expected rise in revenues and profits for some sectors, such as mining, retailing, energy, but not for tourism and travel.
Comments from Dr Lowe in Tuesday’s post meeting statement and his Wednesday speech (entitled ’The Year Ahead’) will be looked at closely against comments in December to see the changes, if any in outlook.
The AMP’s Dr Shane Oliver wrote at the weekend that “We expect Governor Lowe to acknowledge the good news but stay the course with a dovish bias.”
“While the jobs market has improved faster than expected we are still a long way from full employment, jobs growth is likely to slow a bit in the months ahead with some jobs (eg, travel related) taking longer to return and some (eg, in parts of retail) likely to never return again, the end of JobKeeper in late March will create a bit of apprehension (not that I expect much impact),.
“(The) coronavirus still has the potential to create upsets in the short term with uncertainty remaining about how effective vaccines will be, the strong $A is maintaining pressure on the RBA to extend QE and a shift to hawkishness now would be inconsistent with the RBA’s commitment to focus on the achievement of actual inflation sustainably at target.
“However, Governor Lowe may turn down the RBA’s dovish bias a bit and drop the reference to expecting to not raise the cash rate for at least three years.
“Its also likely that following the end of the six months $100bn bond buying program at the end of April the RBA will continue it but at a reduced rate,“ Dr Oliver wrote.
This week being the first week of a month, there’s the usual flow of data – CoreLogic house pries today, car sales later in the week, manufacturing and service sector activity surveys, housing finance (today), building approvals (Wednesday), the trade data on Thursday and December retail sales on Friday.
The Australian December half earnings reporting season steps up pace a fraction this week with only a handful of stocks reporting .
These will include GUD, Credit Corp, Janus Henderson, Genworth Australia, Amcor, James Hardie, News Corp, and REA.
The AMP’s Dr Shane Oliver says earnings are expected to rebound in 2020-21 by 21% after the pandemic driven 24% plunge last financial year.
“In terms of sectors, earnings for resources are expected to rise by 39%, banks by 29% and IT stocks by 119%. Healthcare, media and gaming stocks are likely to see 15% earnings growth and retailers are likely to surprise on the upside,“ he wrote in his weekend note.
