By: Michael Lee
The RBA will publish its minutes this Tuesday regarding the current economic outlook, giving investors potential hints to the possibility of future interest hikes. After holding record low interest rates at 1.5% for 19 months, it would be interesting to see RBA’s stand on its monetary policy. The continued low rate could potentially boost the export sectors, such as mining and food export. The AU labour force report will be released on Thursday, as an indication of whether the recovery in the economy actually benefits the labour market or the two-paced recovery continues to persist. Across the globe, Fed Chair Press Conference and Jobless claims report in the US and Bank of England minutes will be released on Thursday. On Friday, the CPI reports from Japan and Canada are to be released. With the sentiment pointing to the pick-up in CPI and rising interest rates in major nations, their drag on the equity market should be noted. In addition, Wesfarmers announces that it plans to divest Coles later in the year. Greater volatility is expected in the share price of Wesfarmers, but it is worth noting that divestiture has been historically positively correlated with value creation.
As Iron ore found a floor at $72 USD and the renewed hope that the tariff policy on aluminium and steel products from Trump’s admin does not spell a global trade war, with exemptions being granted to major nations on certain condition, iron ore price is expected to be less volatile. The fluctuation in WTI crude between $60 to $62 USD in the last week is likely to remain in the bear territory, as the build-up in crude stock continues its momentum from surging shale production output. The detail on the stockpile will be covered by the EIA Petroleum Status Report on Thursday.
UK CPI report will be release on the Tuesday to shed light into the effect of Brexit. On the back of strengthening of the pound, the room for CPI growth is expected to be limited.
With the tendency for RBA to maintain its record-low interest rates in the response to low inflation, the Australia dollar is unlikely to strengthen against other currencies, such as US and GPB.
As the yield on the US treasuries for 12-month, 5-year and 10-year remains at 2%, 2.6% and 2.8% respectively, it is expected to increase in response to the continued upward sentiment in major economies by the central banks, thus exerting more pressure on the bonds market.
As the Australian Competition and Consumer Commission (ACCC)’s inquiry into the mortgage practice by major banks continued after releasing a 56 page interim report, finding that there was “less-than-vigorous price competition” and “interest rate changes lack transparency”, it is expected that additional information disclosure and comments from big four will continue to surface, in response to the several issues including the use of luring practice that offer new customers with low initial mortgage rates. The lack of interest rate transparency will likely to damage the reputation of the big banks, giving mid-tiered banks, such as Bendigo Adelaide Bank, Suncorp and ME Bank, an upper hand in attracting new customers.