Economic Data, RBC to Drive Australian Markets in Q1 2016

The Australian economy remained on solid footing in 2015, as strong exports and a firming labour market9[1] outweighed plunging commodity prices and a sharp slowdown in China, the country’s biggest trading partner. Underpinning the economy’s resilience has been accommodative monetary policies by the central bank, which cut its benchmark rate to a record low of 2% this past year.

While the Australian economy is projected to grow 3% in 2017,[2] among the highest growth rates in the advanced industrialized world, several underlying risks remain, including emerging market volatility and continued de-investment in the country’s natural resources sector. These risks might prompt the Reserve Bank of Australia (RBA) to cut interest rates even lower in the new-year.[3] Investors interested in trading the Australian markets should therefore pay close attention to the economic data and monetary policy announcements in Q1 2016.

Q1 Economic Calendar

January 6: The first major release of the year comes on January 7 when the Australian Bureau of Statistics (ABS) reports on the November trade balance. As an export-driven economy, trade data has a significant impact on the Australian dollar and broader financial market. Australia’s trade deficit widened to $3.31 billion in October, with exports declining 3%.[4]

January 7: Australian retail sales – a key proxy for consumer spending – rose 0.5% in October, reaching $24.66 billion. That was the highest monthly total on record, according to the ABS.[5] The October rally brought the yearly increase to 3.9%, offering hope that Australia’s economic recovery was beginning to rebalance in the latter half of the year.[6] For this reason, the markets will be closely monitoring the November data.

January 13: Australia’s labour market defied expectations in 2015, with the unemployment rate falling to 5.8% in November behind the strength of more than 71,000 new jobs.[7] This came despite evidence of broader economic fragility. The December jobs report, which will be released on January 18, will be closely followed by the financial markets.

January 26: Australia Day – an official national holiday marking the anniversary of the 1788 arrival of the First Fleet of British Ships at Port Jackson – will be celebrated on January 26. Consumer inflation data, which is closely monitored by the RBA, will be released on the same day.

February 2: The RBA will issue its first monetary policy statement of the year at the beginning of February. The RBA slashed interest rates twice in 2015 to counteract plunging commodity prices and a protracted slowdown in the country’s natural resources sector. According to some analysts, a cooling housing sector[8] and continued commodity weakness might encourage the central bank to cut interest rates again in the new-year. However, there is no consensus opinion on when the RBA could act, if at all, making the February 2 statement all the more important.

February 4: December retail sales figures will be released in early February, and will provide important insights about household spending during the holidays.

February 16: The February 2 RBA meeting minutes, which provide a detailed account of policymakers’ roundtable discussion, will be released on February 16.

February 17: The Australian government will report on January jobs data, giving investors a closer look at the labour market recovery at the start of the year.

March 1: The RBA’s second interest rate decision of the year takes place on March 1. While it’s still too early to speculate about a March rate cut, the balance of economic data over the previous two months will likely dictate policymakers’ next course of action.

March 3: Australia will release advance Q4 GDP data on March 3, one of the most closely followed indicators of the quarter. The strength of the Australian recovery in Q4 could set the pace for what to expect in the first three months of 2016.

March 9: February jobs data will make its way through the financial markets on March 9. The February figures could provide a more accurate view of the strength of the labour market following the holiday season.

[1] Glenn Dyer and Bernard Keane (December 11, 2015). “Chill out, the economy is fine.” Crikey.com

[2] OECD. Australia – Economic forecast summary (November 2015).

[3] David Scutt (October 15, 2015). “GOLDMAN: 2 reasons RBA will continue to cut rates.” Business Insider.

[4] John Conroy (December 3, 2015). “Trade deficit blows out 38% in October.” The Australian Business Review.

[5] David Scutt (December 4, 2015). “Australian retail sales increase 0.5%.” Business Insider.

[6] Glenn Dyer and Bernard Keane (December 11, 2015). “Chill out, the economy is fine.” Crikey.com

[7] Matt Spasic (December 10, 2015). “Australia’s Unemployment Rate Continues to Defy Skeptics.” The Daily Reckoning.

[8] Vanessa Desloires (November 27, 2015). “House prices are cooling, not crashing – but may force RBA cut, Citi says.” The Sydney Morning Herald.

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Source:: Economic Data, RBC to Drive Australian Markets in Q1 2016

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