The flow of data and market-moving events picks up this week after the relative calm of last week, which was affected by the Thanksgiving Holiday in the US. The Australian economy and how the Reserve Bank reads it will dominate the local markets newsflow, while on the other side of the world, all eyes are on the European Central Bank and further announcements on monetary stimulus. US jobs data is expected to fortify the case for the first interest rate rise in almost a decade, while the International Monetary Fund (IMF) is expected to confirm speculation that China's yuan will be admitted to the elite club of currencies with Special Drawing Rights (SDRs). The European Central Bank, meanwhile, looks set to further ease monetary policy.
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1. There's virtually no chance of the Reserve Bank of Australia cutting interest rates for a third time this year when its board meets on Tuesday. However, market analysts and economists will be in search of insight into whether or not another cut could be on the cards for 2016. Resource-related business investment continues to decline and non-mining sectors are failing to pick up all the slack. At the same time, however, the unemployment rate is back below 6 per cent and there's nothing to suggest at this stage that it will ratchet back up too much over the coming months. With the housing market cooling and inflation benign, there's nothing to stop the RBA from cutting again. It has the whole festive season weigh up all of this, making the February board meeting now key to where monetary policy might head next year.
2. Australia's national accounts are completed this week and the culmination will be Wednesday's publication by the Australian Bureau of Statistics of quarterly and annual growth in gross domestic product. A Bloomberg survey of 25 economists came up with average growth of 0.7 per cent for the three months to the end of September, equating to 2.3 per cent for the year. The main downside risk to this is the much sharper than expected contraction in business investment seen in last week's capital expenditure data. Any further surprise in the remaining GDP components released this week - mainly company profits and inventory and trade-related data - might force a last-minute downgrade to the quarterly and annual forecasts.
3. The world's two biggest economies - the US and China - are diverging when it comes to monetary policy, the former set to start lifting interest rates after almost a decade and the latter, cutting rates. China has also been careful of late to reset onshore trade of its currency to reflect offshore market movements as part of a campaign to liberalise what is primed to become one of the world's most important monetary units. In recognition of this, the IMF is expected to announce early Tuesday Australian time that the yuan will join the US dollar, yen, euro, and pounds sterling in the basket of currencies with SDRs. These are, according to the IMF, a potential claim on the freely usable currencies of IMF members. It won't become part of the system until late next year, meaning market reaction should be muted once the decision is announced - unless there's a surprise. However, China's program to liberalise its capital markets along with its currency is expected to intensify between now and then, and this could have market repercussions at various stages. Finally, keep an eye on the European Central Bank early Friday Australian time. Any announcements of further stimulus should buoy risk assets.
