-
Policy
Policy
Exclusive interviews with leading policymakers that convey the true policy message that impacts markets.
LATEST FROM POLICY: -
EM Policy
EM Policy
Exclusive interviews with leading policymakers that convey the true policy message that impacts markets.
LATEST FROM EM POLICY: -
G10 Markets
G10 Markets
Real-time insight on key fixed income and fx markets.
Launch MNI PodcastsFixed IncomeFI Markets AnalysisCentral Bank PreviewsFI PiFixed Income Technical AnalysisUS$ Credit Supply PipelineGilt Week AheadGlobal IssuanceEurozoneUKUSDeep DiveGlobal Issuance CalendarsEZ/UK Bond Auction CalendarEZ/UK T-bill Auction CalendarUS Treasury Auction CalendarPolitical RiskMNI Political Risk AnalysisMNI Political Risk - US Daily BriefMNI Political Risk - The week AheadElection Previews -
Emerging Markets
Emerging Markets
Real-time insight of emerging markets in CEMEA, Asia and LatAm region
-
Commodities
-
Credit
Credit
Real time insight of credit markets
-
Data
-
Global Macro
Global Macro
Actionable insight on monetary policy, balance sheet and inflation with focus on global issuance. Analysis on key political risk impacting the global markets.
Global MacroDM Central Bank PreviewsDM Central Bank ReviewsEM Central Bank PreviewsEM Central Bank ReviewsBalance Sheet AnalysisData AnalysisEurozone DataUK DataUS DataAPAC DataInflation InsightEmployment InsightGlobal IssuanceEurozoneUKUSDeep DiveGlobal Issuance Calendars EZ/UK Bond Auction Calendar EZ/UK T-bill Auction Calendar US Treasury Auction Calendar Global Macro Weekly -
About Us
To read the full story
Sign up now for free trial access to this content.
Please enter your details below.
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
Real-time Actionable Insight
Get the latest on Central Bank Policy and FX & FI Markets to help inform both your strategic and tactical decision-making.
Free AccessMNI: Spotlight On RBA Data-Dependence As Labour, GDP Run Hot
Recent stronger-than-expected data, particularly GDP and employment, have fueled debate over whether the Reserve Bank of Australia will be pushed into hiking rates further to pull inflation back to its 2-3% target band, but prominent economists and former staff members were divided, with one seeing room for it to continue its wait-and-see approach.
While August’s unemployment held flat at 3.7% last week, employment strengthened with 65,000 jobs created, illustrating persistently high labour demand. Q2 GDP also held up better than expected, growing 2.1% to June, according to the Australia Bureau of Statistics National Accounts data earlier in the month.
The RBA had expected Q2 GDP at 1.6%, while it wants unemployment at 3.9% by December, according to forecasts within its August Statement on Monetary Policy. (See table) Following the RBA's September decision, former Governor Philip Lowe said some further tightening may be required but noted that inflation had passed its peak and that further rates moves would be data dependent. (See MNI BRIEF: RBA Holds At 4.10%, Inflation Passed Peak)
Sean Langcake, head of macroeconomic forecasting at BIS Oxford Economics and a former RBA economist, said the economy's strength was likely front-loaded. “Not only was that Q2 number a touch ahead of expectations, but the Q1 number revised higher also,” he noted. “I believe that strength has been pulled forward and we will now have softer numbers over the second half."
While ahead of expectations, the central bank will not view the data completely off its trajectory, Langcake added. “The RBA is clearly trying to preserve the labour market gains and the way it’s doing that is by tolerating higher inflation for longer,” he added.
OFF TARGET
But Warren Hogan, managing director at EQ Economics and a former principal advisor at the Treasury, noted the Bank wanted the real interest rate at zero by the end of the year and had forecasted inflation at 4.1% by December.
“The RBA has been happy to be patient… but that target is now starting to come under pressure,” he said, adding that the RBA must ensure the accuracy of its near-term forecasts.
Hogan added several recent business sentiment surveys have shown that cost, price, labour and energy pressures remain elevated, suggesting the Q2 and July monthly CPI prints were unusually soft. He said Q3 CPI will likely print much higher driven by strong oil prices and could force the RBA to raise the cash rate to 4.35% at the November meeting.
Traders have recently cut expectations for a rate hike next year, with the overnight index swaps market predicting a 4.38% terminal rate and a 126% chance of a 25bp hike by May 2024.
“Not only was GDP strong, but employment was ridiculously strong, and no one should be surprised when demand for labour is through the roof with shortages everywhere and job vacancies at unbelievably high levels,” he continued.
MNI reported last week persistently strong wage growth alongside the tight labour market would continue to add upward pressure on inflation. (See MNI POLICY: Strong Wages To Frustrate RBA's Inflation Hopes) The RBA will focus especially on the September quarter wage data due Nov. 15.
WEAK H2
Langcake, however, believes the economy will slow into the end of the year as the services recovery stalls following a strong Q2 performance. He added public, machinery and equipment investment will slow – thanks to a pullback in tax incentives – alongside declines in retail sales and mining exports as inventories have drawn down.
“I see the RBA sitting on its hands from here, basically until late next year,” he added. Recent CPI prints showed inflation had fallen in line with the bank’s expected “narrow path,” Langcake continued. “I think the RBA has given itself a buffer in its forecasts to weather a bit of an upside shock and still credibly say the economy is playing out as expected. It will take a major upside surprise to get it back into action.”
To read the full story
Sign up now for free trial access to this content.
Please enter your details below.
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.