Four Drivers In The Week Ahead

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After the US and UK holidays on Monday, there are four highlights in the week ahead. First, the Reserve Bank of Australia's meeting will receive more attention after the Reserve Bank of New Zealand signaled the likelihood of a rate hike in the second half of next year.

Second, the G7 finance ministers may agree to endorse a proposal for a minimum corporate tax rate of 15% and an additional tax on the largest 100 companies (so that areas in which they sell can collect taxes).

Central banks say that their policy path is data-dependent, but this is coded language. Officials at the Fed and ECB say price pressures are transitory, which means that it will look past near-term increases. Yet, the ECB's Panetta seemed to link the increased bond purchases to sustained inflation pressures.

That means the June 1 preliminary estimate of the eurozone's May CPI will likely garner more attention than otherwise would have been the case. When Fed officials like Vice Chair Clarida talk about the importance of economic data, they probably have employment on their minds, not inflation. After the big miss with the April jobs report, the May reading on June 4 will be riveting.  

RBA Meeting

The Australian economy is around six times larger than the New Zealand economy. Its terms of trade are dramatically different. The Reserve Bank of New Zealand's reintroduction of its cash rate path outlook, with the first rate hike penciled in for H2 22, has no real material bearing on the Reserve Bank of Australia's meeting on June 1.

It is similar, though altogether different than the ECB's Lagarde and the Fed's Powell batting away questions about if the Bank of Canada assessment that its economic slack will be absorbed in the second half of next year and that it would reduce its bond-buying; if that says anything about the conduct of their respective monetary policies. 

Even those who think that the RBNZ is a sort of tell are not expecting much from this week's RBA meeting. The July 6 meeting is more important. First, the term funding facility is set to end on June 30. Second, officials have already indicated that it will decide in July whether to target the November 2024 yield under the RBA's yield-curve control strategy, rolling out from the current April 2024 issue.

The central bank will also decide then whether to have another round of asset purchases when the current A$200 billion operation is completed at the end of September.

Like the Federal Reserve, the Reserve Bank of Australia has emphasized labor market developments in its reaction function. Employment data has not been clean for a couple of months. The JobSeeker income support program ended in March, and the holidays (Easter and school holiday) may have exaggerated the job loss in April (-30.6 thousand, well below the median forecast in the Bloomberg survey for a gain of 20 thousand).

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Read more by Marc on his site Marc to Market.

Disclaimer: Opinions expressed are solely of the author’s, based on current ...

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