This week in business: RBA 'chills out' as GDP set to remain weak

The change of season usually brings a data deluge and this week's start of summer is no exception with an RBA meeting thrown in for good measure.

RBA governor Glenn Stevens and his board already seem in holiday mode and in no mood to pull any monetary levers down.

Indeed, Mr Stevens last week told a dinner of business economists to "chill out" when asked about a rate cut and the potential for another "surprise" February rate cut.

The RBA board takes January off as well.

"February is three months away, we've got Christmas, we should just chill out ... come back ... and see what the data says," Mr Stevens said, blithely batting away his inquisitor.

Scorecard: Governor 1, Pointy Heads 0.

As HSBC's Paul Bloxham noted, December is seemingly not even in consideration.

From the market's point of view, there is only a 5 per cent chance of a cut on Tuesday.

So if December is out, what about February?

Mr Bloxham said if one thing is clear, it is that the RBA does not want to cut further, otherwise it would have done so already.

"Inflation is low and the central bank is forecasting it to stay low over coming quarters," Mr Bloxham said.

"At the same time, the RBA is forecasting growth to remain below trend until late 2016 and the unemployment rate to stay high over the next two years."

"The RBA is clearly patient and has set a high bar for delivering any further stimulus."

GDP may bounce back modestly from weak second quarter

The dire capex figures last week — down 9.2 per cent for the quarter and the worst performance on record — were hardly a promising lead in to the September quarter economic growth figures on Wednesday.

Most economists immediately lopped about 0.2 per cent off their GDP forecasts.

However, a strong recovery in net exports may well support a rebound in GDP growth after a weather affected second quarter.

While consumers have been doing their bit, the domestic economy is expected to remain insipid, dragged down by weak business spending.

The consensus view is that the economy expanded by about 0.6 per cent in the quarter — or 2.2 per cent over the year.

Australia's trade performance will be under the microscope with the third quarter Current Account (Tuesday) expected to show another very large, but narrowing deficit.

The deficit in the second quarter was $19 billion.

This time around the deficit is forecast to come in between $17 and $18 billion on the back of rising export volumes, although this will be partially offset by a further decline in the terms of trade as export prices tumble and the cost of imports are driven up by a lower Australian dollar.

Retail sales (Friday) may end the week on a positive note with a modest 0.4 per cent monthly gain forecast.

US jobs and Fed Chair testimony

Overseas, the focus will be directed at US jobs figures as well as the utterances of the Fed's chair Janet Yellen at her biannual economic outlook chat at the Joint Economic Committee in Washington.

This will probably be the last time Dr Yellen will be speaking publicly before the next Federal Open Market Committee on interest rates on December 16, so it will be even more keenly listened to than usual.

The market is currently putting the odds of a rates "lift off" at that meeting at 70 per cent.

As RBC noted, "there is broad consensus to start lift off in December and with only a couple of weeks separating this speech and the first rate hike in over a decade there is no room for ambiguity".

An unambiguous Federal Reserve boss would be a story in itself.

Following Dr Yellen's testimony, key jobs data will be released late on Friday.

Last month's creation of 270,000 new jobs was the catalyst for the sudden shortening odds on a December rate hike.

Another strong result above 200,000, and unemployment falling below 5 per cent, might seal the deal on an immediate lift-off.

Will the ECB end the year with a bang or whimper?

The fact that German five year bonds have hit record lows — trading at around -0.18 per cent late last week — indicates the market expects some pretty aggressive action from the European Central Bank when it meets on Thursday.

ECB chairman Mario Draghi has been doing his "whatever it takes" shtick again lately, promising a reassessment of the bank's monetary policy stance at the final meeting of the year.

Markets are pricing in a 10-basis-point cut in the ECB's deposit rate, some economists are tipping double that.

The ECB's deposit rate has been at -0.2 per cent since September last year, while its refinancing rate is marginally positive at 0.05 per cent.

A 20 basis point cut means banks would be charged 0.4 per cent for the honour of parking their dosh overnight with the ECB, not exactly a tantalising option.

On top of another round of rate cuts, the quantitative easing, or bond buying, program which has just been extended by six months may be expanded as well.

Currently the ECB buys around 60 billion euros (about $88.4 billion) worth of public and private debt a month.

Boosting that by another 10 to 20 billion euros (about $15 to $29 billion) per month would not be a surprise.

Diary notes

Monday 30/11/2015

Business indicators

Inflation gauge

New home sales

Private sector credit

Sep Q: ABS series including sales, profits and inventories

Oct: TD Securities series. Inflation is benign

Oct: HIA series, rebound from previous fall forecast

Oct: Housing business and personal lending. Tipped to have risen 0.6 per cent over the month

Tuesday 1/12/2015

Reserve Bank meets

Current account

Building approvals

Home prices

Manufacturing index

Market forecasts less than 10 per cent chance of a rate cut

Sep Q: Deficit last quarter was $19 billion, expect something similar

Oct: Volatile, tipped to rise 0.5 per cent

Oct: CoreLogic series. Is momentum slowing?

Nov: AIG series, probably up on last month

Wednesday 2/12/2015

Economic growth

RBA Gov speaks

Sep Q: GDP could be slowing to around 2 per cent

Governor Glenn Stevens speaks in Perth

Thursday 3/12/2015 Balance of trade Oct: First reading of new Quarter, another big deficit of around $2.5 billion forecast
Friday 4/12/2015 Retail sales Oct: Solid, not spectacular growth of 0.4 per cent forecast
Monday 30/11/2015 US: Pending home sales Oct: up 3 per cent YoY
Tuesday 1/12/2015

CH: Caixin PMI

EU: Markit PMI

EU: Unemployment

Nov: Another manufacturing contraction tipped

Nov: Expansion forecast

Oct: Still around 10.8 per cent

Wednesday 2/12/2015

US:  Manufacturing PMI

US: Fed testimony

US: ADP employment

EU: Inflation

Nov: Expanding but more slowly

Fed chair Janet Yellen starts two-day congressional testimony

Nov: Another 180,000 likely to be jobs created

Nov:  Close to zero

Thursday 3/12/2015

EU: ECB rates meeting

EU: Retail sales

Action expected, rate cuts and more QE

Oct: Up around 2.6 per cent YoY

Friday 4/12/2015

US: Non-farm payrolls

US: Unemployment

US: Balance of trade


Nov: Last month was huge 270,000 gain, another strong figure could seal a December rate rise

Nov: Steady at around 5 per cent

Oct: Monthly deficits running at around $US40 billion

Sep Q: 2nd estimate tipped to be a weak 1.6 per cent YoY


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