Market Watch

New month, end of a quarter, end of a financial year – June has it all from an Australian financial perspective as the corporate books close on another financial year.

The odd window dressing trade will also hit the screens this month as managers close out positions.

Look through all this though as the very short-term noise should not distract you from the longer-term picture.

Economics this week is mainly focused on Australia. The start of the third month of a quarter means we get the quarterly accounts from the previous quarter. 

Australia’s GDP is due Wednesday and the lead-in data over the past few weeks has it sitting on trend. Consensus is for 0.8 per cent quarter-on-quarter and 3 per cent year-on-year. However, there are likely to be pros and cons from the Q1 numbers.

What to watch for:

• Consumption (C). Data over the quarter was subdued so we may see a contraction here after a solid December quarter.
   
• Private Investment (PI). As the CAPEX data from last week showed, PI was a touch lower than forecasted. However, the survey did not capture all service-based industries such as health and education. Non-mining had been growing at roughly 8 per cent in 2017.
   
• Government Investment (GI). It remains a core component of GDP, and public infrastructure spending has experienced a large renaissance over the past 5 quarters to follow the trend here.
   
• Net Exports (NE). The Q1 trade balance figures (January through March) were the best export figures in over five years with each month averaging a surplus of more than $1 billion.

Always remember from a market’s perspective, when it comes to GDP, it is retrospective data. I would be more forward-looking and point to the service and manufacturing PMIs that are both expanding, and expanding solidly at that.

Considering it’s the start of a new month, and the first Tuesday, the RBA will come out with its cash rate decision tomorrow. 

The board will push out another slightly tweaked iteration of previous statements to justify why, for the 20^thmonth in a row, Australia’s cash rate will remain at 1.5 per cent. There will be minimal changes here.

Both the market and economists are unanimous in their consensus the RBA will leave rates on hold on Tuesday. It’s interesting that since the previous meeting on May 1, even the most hawkish economists have pushed out their views on rate rises from the central bank into 2019. There are now no notable calls for a rate rise in 2018. All have shifted their calls into 2019, with consensus now that the first rate rise from the RBA in a long time will take place in Q3 2019. 

But the RBA’s latest Statement of Monetary Policy (SoMP) sees underlying inflation breaching its 2-3 per cent mandate band in 2020 for the first time since Q3 2015, so don’t be surprised to see this consensus push out even further. 

That fence the RBA is perched on must be very warm and will only get warmer.