While the looming rate rise hogs the local spotlight, the important US jobs figures on Friday and other start of month data releases will dominate thinking globally.
Markets expect the RBA will lift the cash rate by half a per cent to 1.35% at its July monetary policy meeting tomorrow.
Last week’s main data releases on retail sales (up 0.9% in May) and job vacancies for the May quarter (a record high of 480,000 with 1.1 people for every one job, an all-time low) both told the RBA that consumers are still spending and the jobs market is the tightest ever.
The AMP’s chief economist, Shane Oliver said in his weekend note that “This is already the fastest tightening cycle since 1994 and reflects the surge in inflation and the RBA wanting to underline its commitment to getting inflation back to 2-3% on the grounds that this will help avert the need for even more aggressive rate hikes later.”
RBA Governor Lowe last month indicated that a 0.25% or 0.5% hike is on the table for the July meeting.
“With interest rates still being too low given the tight jobs market, inflation on its way to 7% yoy and the RBA needing to keep inflation expectations down – particularly after the roughly 5% minimum wage and minimum award wage increases – we expect another 0.5% move,” according to Dr Oliver.
“A 0.75% hike as undertaken by the Fed last month is possible but unlikely given that the RBA meets more frequently than the Fed,” he said.
Dr Oliver said the RBA will probably hike again by 0.5% in August but thereafter we expect more gradual moves as economic data slows with the cash rate expected to rise to 2.1% by year end with a peak around 2.5% in the first half of next year, ahead of rate cuts in the second half of next year.”
On the Australian data front there’s May building approvals and housing finance data – both out later today and the trade surplus for May on Thursday.
Meanwhile US investors are viewing the third quarter with greater trepidation about a recession and that increases the market’s focus on next Friday’s June jobs report.
Before the jobs report there’s Wednesday’s release of minutes from the Federal Reserve’s last interest rate meeting which boosted the federal funds rate by 0.75%.
Friday’s labour market report is expected to see growth in June’s non-farm payrolls slowed from the 390,000 reported in May, but still show solid enough growth to maintain a strong labour market.
According to forecasts, economists expect 250,000 payrolls were added in June while the unemployment rate held steady at 3.6%.
Moody’s economists though see a lower figure – around 200,000. “Our preliminary forecast is for a noticeable deceleration in job growth in June, with it rising by around 200,000. This comes on the heels of a 390,000 net job gain in May. The unemployment rate likely remained at 3.6%.”
Hourly wages are forecast to be around the 5.2% rate reported for May (when they rose 0.4% month on month).
“Employment should slow from May. Whether it goes to 250,000 consensus or more, there’s always volatility,” said David Page, head of macroeconomic research at AXA Investment Managers.
“The trend is going to be lower, and I wouldn’t mind betting it would be in 150,000 to 200,000 by early Q3, and it could be certainly lower by the end of the year.”
Chinese inflation data for June will be released next Saturday and are likely to remain benign albeit with a rise in CPI inflation to an annual 2.5%. If it does, that would be the highest for more than a year.