Yesterday’s poor unemployment report was enough for markets to begin to lean towards another interest rate cut in August:
And over the past two weeks, futures have also reversed course and added another 25bps to cuts over the next twelve months:
Both of these markets look priced about right. There is not enough pain abroad right now for the RBA to cut again in August. But the meeting is not until August 7th and there is a lot of data between then and now including job ads data from DEEWR and ANZ, the PPI and CPI, the June trade balance, building approvals and retail sales. Of these, obviously CPI will matter most but only if it prints a high number, which is very unlikely in my view. The trade balance is potentially also important but not until July (which is printed in late August) when new quarterly contract prices for thermal coal and iron ore drive up the deficit.
So, to me, the three releases that will be most important will be retail sales and the job ads releases. The recent round of interest rate cuts have been all about getting the services economy moving a little more quickly as mining comes under pressure from falling commodity prices. If the recent retail thaw reverses and job ads decline further, the cut could be on. But we would need to see one way weakness in these three, I suspect.
At this point, for mine, September is a better bet.
Twitter: David Llewellyn-Smith. He is the Editor of Macro Investor, Australia’s independent investment newsletter covering trades, stocks, property and yield. Click for a free 21 day trial.
