Globally it’s a quiet week, starting with the Labor Day holiday in the US tonight, but in Australia it will be the Reserve Bank’s monetary policy decision tomorrow that dominates events this week and then August employment data on Thursday.
But there’s also the August trade data from China tomorrow, as well as consumer price inflation and produce price data for August as well later in the week.
Besides the meeting of the RBA, central banks on Canada and Malaysia also meet and are expected to leave rates on hold – Canada is in the midst of its September 20 election campaign.
The RBA is expected to leave interest rates at their current record low of 0.10% and not change the April 2024 target for the three-year yield control aimed at keeping rates at that level.
The bank will note that Covid Delta infections have worsened significantly in NSW, the ACT and Victoria since the last meeting a month ago and growth is collapsing (despite the 0.7% rise in GDP in the June quarter, down from 1.9% in the three months to March).
Economists at Moody’s. com wrote on Friday, “We expect the central bank to keep its monetary settings steady in this announcement and for the cash rate to be maintained at 0.1%.”
“With the latest domestic outbreak set to drive Australia into its first quarterly contraction since June 2020, the central bank is likely to prioritise stability by maintaining settings conducive for demand and employment recovery once restrictions are relaxed.
The AMP’s Dr Shane Oliver thinks the central bank will delay the tapering of its bond buying and continue it at the rate of $5 billion a week until a review early next year.
“In fact there is a case to increase bond buying. At its last meeting it indicated that it “would be prepared to act in response to further bad news on the health front should that lead to a more significant setback for the economic recovery”.
“Since then the extension and/or addition of lockdowns in NSW, Victoria and the ACT constitute a “significant setback” which mean that GDP growth this year could now come in around zero which is well down from the RBA’s 4%.
“And the initial part of the recovery is likely to be more subdued against a backdrop of high numbers of coronavirus cases. So, the level of economic activity will be far lower and the level of unemployment far higher through 2022 than the RBA was assuming a month ago.
“Delaying the taper and maybe even increasing bond buying to say $6bn a week may not result in a big boost to 2022 growth and the heavy lifting will have to come from fiscal policy, but it will help.
“It also won’t look so good for the RBA to be reducing stimulus by proceeding with the taper at a time when the economic outlook has deteriorated significantly,” Dr Oliver wrote at the weekend.
Thursday’s fortnightly jobs update from the Australian Bureau of Statistics will show the size of job losses up to the middle of last month in NSW, Victoria and the ACT from the Delta driven lockdowns.
Tuesday sees China’s August trade data released.
Exports are likely to have held up in August, benefitting from improving overseas demand for consumer goods, though the yearly increase in exports and imports will fade as low base effects fade.
China’s annual inflation on Thursday is likely to come in a touch softer at 0.9% in August, compared with 1% in July, as a result of cooling food prices. Producer price inflation will have remained high.
The question for foreign economists if there is any sign in the inflation data from the impact of the slowing pace of activity across the economy, especially in services.
US data releases settles down this week which will be shortened by the Labor Day Holiday on Monday (Today). There’s also the final Quarterly Services Survey for the second quarter which will feed into the third and final estimate of second quarter GDP later this month.
The US week wraps up with August producer prices on Friday.
There are only a handful of US corporate results this week – none of any great importance.
In Europe, Thursday’s meeting of the European Central Bank will probably sit pat, especially on the question of its bond buying a bit but signal some change ahead.
There’s also the final estimate for euro zone second-quarter GDP will be released this week. Moody’s economists say growth likely rose 2% q/q in the three months to June, following the March quarter’s 0.3% decline.
