Activity is expected to be limited today as NSW banks enjoy a holiday.
On Friday, A leading rate of 5.30% for 2 years from an ‘A’ rated counterparty attracted significant flow.
The NCD market is enjoying balanced supply and demand of funds, reflected in a prolonged period of +45 for 3 months as the market level.
RBA Forecasts Inflation Returning to 2.8% by the End of 2025
Last Friday, the RBA released their Statement on Monetary Policy.
The SOMP has come as a pivotal time, as demand is subsiding, supply side factors are easing and inflation is decelerating.
The RBA revised downward forecasted GDP, citing China’s post-COVID-19 weaker than expected recovery as a contributing factor.
They are forecasting unemployment to rise to 4.5% by the end of 2024 and Inflation to drop to 3.25% by the end of 2024.
The May SOMP had the peak cash rate at 3.75%, Now they are assuming a peak cash rate of approximately 4.25% by the end of 2023, dropping to 3.25% by the end of 2025.
They have forecasted inflation not reaching the Mid-point of 2-3% inflation target by 2025 but seemed to have reach a point where either a hike or pause has balanced risks.
Mixed U.S. Jobs Data
Non-farm payrolls came in weaker than expected, with the U.S. economy creating 187K vs market expectations of 200K in June.
However, the unemployment rate fell by 0.1% to 3.5% (unexpectedly) and wage growth was higher.
This trend of a tight labour market with signs of weakened aggregate demand is also apparent in Australia’s economy.
Central banks will monitor labour markets closely to see if wage growth will creep into supply side costs and place upward pressure on prices.
The Week Ahead
On Tuesday, the RBA’s meeting minutes are released. With the SOMP recently printed and an anticipated pause at the meeting no surprises are expected from this data.
Industrial data is out from China. Last month saw production rise by 4.4% YoY beating forecasts. Markets will be keen to see if this upwards trend continues.
In the U.S. retail sales and the FOMC minutes are released.
The UK employment and inflation data is printed throughout the week.
With the UK struggling to curb inflation the Bank of England will be looking for reprieve from these data points.