Central bank week with what’s left of it for Australian markets from today with the US Federal Reserve, the Bank of Japan and the Bank of England leading a group of bankers to reveal monetary policy intentions – with the Fed widely expected to announce its 4th rate rise of the current cycle early Thursday morning, Sydney time.
A few hours later the Bank of England is expected to sit on its interest rate stance, but watch for comments about the outlook after last week’s inconclusive elections. The Bank of Japan will announce its decision on Friday, the second of its two day meeting. And then a few hours later the Bank of Russia will reveal its rate decision – no change is expected from either.
In between all that there’s the rest of the monthly economic data from China, and a quiet week though in Australia for major data releases and France will be assessing the results of the first round of Parliamentary elections that saw the new party of President Macron on the verge of a parliamentary majority with the second round of voting next Sunday.
Of all of this, the US Federal Reserve will dominate globally, as well as the post meeting media conference by chair Janet Yellen and the release of new economic forecasts, with the outlook for rates (the so-called dot plot) again dominating commentary.
A decision to raise interest rates again for the fourth time in this cycle will take the Fed Funds rate to a range of 1.00-1.25%, but the AMP’s Chief Economist, Dr Shane Oliver says “the focus is likely to be on the tone of the post meeting statement, Fed Chair Yellen’s press conference comments and the so-called dot plot of Fed member’s interest rate expectations.”
"We expect the Fed to signal that it expects to raise rates once more this year, probably in September, and to start letting its bond holdings decline from late this year by phasing down the rolling over of maturing bonds.
"However, it is likely to stress that further tightening remains contingent on activity and inflation improving and that the process will remain gradual. In view of recent softer wages and inflation data it may even revise down the dot plot of interest rate expectations.
“All up the Fed is likely to remain relatively benign for investors,” Dr Oliver wrote at the weekend.
And on the other banks, Dr Oliver wrote “The Bank of England also meets Thursday and is unlikely to make any changes to monetary policy and likewise the Bank of Japan (Friday) which is basically on autopilot.”
And on the continuing fallout out from the UK polls, Dr Oliver was quite dismissive: “If anything the election outcome likely increases the probability of a soft Brexit – which may be good for the UK economy (and perceptions across Europe).
"However, from a big picture perspective the UK is just 2.5% of world GDP and it’s hard to see significant implications for global investment markets. Just noise – unless of course you are in the UK or have a big exposure there!”
Looking at the data releases, the US will see consumer price inflation tomorrow night and it is expected for show very little change.
Retail sales are also out on Wednesday and will not tell the true story of US retailing – that it is a a disaster zone for more and more sectors. Industrial production will have been flat in April (out Thursday night), while housing starts are to be released on Friday night.
In Asia, Chinese economic activity data for May is out tomorrow and after the surprisingly solid trade and inflation figures, should show some underlying strength with Dr Oliver seeing industrial production remaining at 6.5% year on year; retail sales growth picking up to 10.8% and investment slowing to 8.8%.
Chinese credit data is also due for release this week.
The Bank of Indonesia releases its monetary policy decision on Thursday while Japanese industrial production for April will be confirmed on Wednesday.
In Australia the major release is Thursday’s jobs data for May which should show another modest rise in new jobs.
The NAB business survey’s confidence and conditions reports for May are out later today and should again be solid, and consumer confidence is out tomorrow and likely to be unsteady again.
RBA deputy governor Guy Debelle speaks at Thomson Reuters event on Thursday. And Vocus (which is subject to a conditional takeover approach from KKR) is to hold an investor day tomorrow.
