Week ahead: November 6th – 10th
RBA & RBNZ rate decisions, key data in focus
Next week’s market movers
- In Australia, the RBA is widely expected to stand pat once again. With the Bank likely to maintain its neutral bias on policy, focus may be on any changes to the language surrounding AUD.
- The RBNZ is also anticipated to take no action. Given recent news that the RBNZ Act may be expanded to include full employment, we will look for any signals as to whether this could delay the first planned rate hike in New Zealand.
- We also get key economic data from New Zealand, China, and Norway.
On Monday, during the Asian day, the RBNZ will release its updated 2-year inflation expectations print. Even though no forecast is available, this is a key indicator that the Bank pays a lot of attention to. Remember that the Bank surprised market participants by cutting rates abruptly in Q1 2016 after the inflation expectations rate slid, in order to ensure that expectations remain anchored to the target. As such, we will monitor this print closely, as any change could set the tone for what to expect from the RBNZ meeting later in the week (see below).
On Tuesday, during the Asian morning, the RBA will gather to decide on interest rates. The Bank is forecast to remain on hold once again, something we agree with. When they last met, RBA officials kept policy unchanged, while according to the meeting statement, they were optimistic on the economy overall. Nonetheless, they reiterated their concerns over the exchange rate, noting that the higher AUD is expected to contribute to subdued price pressures and that it is weighing on the outlook for output and employment. Since that gathering, economic developments have been mixed. The AUD is trading at somewhat lower levels than it was back then, while the NAB business survey showed increased confidence in September. Nevertheless, the important labour costs index has slowed on a QoQ basis. On top of that, headline inflation for Q3 slowed, while the trimmed mean rate remained unchanged. What’s more, retail sales were extremely soft throughout Q3.
All these support the case for the Bank to stand pat, and to maintain its neutral bias on policy. What may attract market attention once again is any reference to the exchange rate. Investors may look at whether officials are still concerned on that front, despite the currency’s latest slide. Having said that, we think that one of the main determinants of whether the Bank will begin to appear somewhat hawkish in the months to come is the wage price index for Q3, which comes out on the 15th of November.
On Wednesday, we get China’s trade data for October and expectations are for the nation’s trade surplus to have widened. Exports are forecast to have accelerated, while imports are expected to have slowed notably, a combination which supports the case for a widening surplus. However, taking a look at the nation’s official PMI report for October, we believe that the risks surrounding exports as tilted to the downside. The New Exports Orders index declined but stayed above 50, which shows exports rising, but at a slower pace. The import index declined as well, supporting the forecast for a slowdown in imports. Bearing in mind that the exports index fell by more than the imports one, we also see the case for the surplus to have narrowed, instead of widened as the consensus suggests.
On Thursday, the RBNZ rate decision will take center stage. In the statement accompanying the latest decision, the most noteworthy point related to the Kiwi. Policymakers softened their tone on the currency, noting that a lower NZD would “help” the economy, as opposed to a lower NZD is “needed” in the previous meeting. Since then, the currency fell notably, mainly following developments on the nation’s political front. Among other pledges, the new Labour government announced that it is seeking to reform the RBNZ Act. These reforms will seek to expand the central bank’s mandate to include full employment as well, in addition to price stability.
Having all these in mind, we believe that the Bank will likely soften even further its tone on the Kiwi, given its recent tumble. Nevertheless, bearing in mind that the Bank may now need to target two variables, we believe that the rates are likely to remain low for longer than previously anticipated. Therefore, we see almost zero chance for the Bank to act at this gathering, while the see the case for officials to push back the timing of their first planned rate hike.
From China, we get the CPI and PPI prints for October. No forecast is available for the CPI, while the PPI is expected to have slowed on a yoy basis. The forecast for the PPI is supported by the Producer Price index of the official manufacturing PMI, which slid notably in October, but stayed above the critical barrier of 50. As for the CPI rate, based on the Sales Price Index of the official non-manufacturing PMI, we see the case for a tick down.
Finally on Friday, we get Norway’s CPI data for October. The consensus is for the headline CPI rate to have declined, while the core is expected to have held steady. When they last met, Norges Bank officials noted that developments have so far been broadly in line with the picture presented in the September report. What’s more, they noted that inflation has been slightly lower than projected. A potential decline in the headline CPI rate this month could enhance the NB’s view, and could add to speculation that the first planned rate hike in Norway may be delayed relative to what the Bank currently expects.
