The Week Ahead

In a rather surprising move, the RBA revised down its growth forecast by a quarter percentage point for both 2014 and 2015 to +2.5% and +3% respectively. The central bank indicated that ‘the differences are well within usual ranges of uncertainty for the forecasts’. While the budget worries have eased, the central bank remained concerned about the outlook for non-mining investment, where companies report that they are ‘reluctant to invest until they see a sustained period of strong demand’. Due to the repeal of the carbon tax, the RBA lowered headline inflation by -0.75% over the year to June 2015 (mid-point at 2.75%). Underlying inflation was reduced from 2.5% in the year to December 2014 to 2.25% and from 2.75% to 2.25% (mid-point) for the year to June 2015. The central bank reiterated its forward guidance of a ‘period of stability in interest rates’. On the job market, policymakers do not expected the unemployment rate to begin declining until 2016. This was compared with the May Statement that the unemployment rate was likely to begin declining consistently from mid-2015.

For the coming week, Australia economic data would be on the backseat. The latest NAB business survey (Tuesday) and Westpac consumer confidence survey (Wednesday) are relatively important data. The 2Q14 labor cost data due on Wednesday would show the impact of a weakened job on inflation. Elsewhere in the Asia Pacific, a series of Chinese macroeconomic indicated due Wednesday would likely show little improvement in July from a month ago. Industrial production probably rose +9.1% y/y for July, down from +9.2% a month ago, while retail sales might have expanded +12.5%, after a +12.4% gain in June. Growth in fixed asset investment (FAI) might have climbed higher to +17.4% from +17.3%. The PBOC would also release July’s money and credit aggregates this week. The focus of Japan is the first print of 2Q14 GDP data due Wednesday. The market has expected a negative growth of -7.1% saar due to the payback of the front-loaded consumer spending ahead of the sale tax hike in April. The BOJ minutes for July would be released on Wednesday.

Australia

Japan

China

In Europe, the BOE’s quarterly inflation report for August would contain little change to the growth forecasts while the path of unemployment might be revised downwards. Another focus is on the estimates of economic slack. In May, the BOE suggested that this was between 1% and 1.5% of GDP, mainly concentrated in the labor market. We expect the estimate would be lowered as the unemployment rate has dropped steadily since then (to 6.5% from 6.9%). In the Eurozone, GDP growth and inflation data are under the spotlight. Inflation data from Germany, France and Spain will confirm the Eurozone’s final CPI for July (due on Thursday). Meanwhile, the preliminary readings of German and French GDP growth, due on Thursday, would be largely flat in the second quarter.

US data would begin with Tuesday’s the JOLTs survey for June which would probably show 4.55M job openings in June, compared with 4.64M in May. This survey has recently attracted more attention as Fed Chair Janet Yellen often cites the survey when assessing the labor market situation. Core retail sales probably gained +0.4% m/m in July as driven by stronger labor income, consumer confidence, chain store results, and rising ISM non-manufacturing reading. Industrial production probably gained +0.3% m/m in July, following a -0.2% rise a month ago. The sluggishness was due to declines in manufacturing hours worked and falling utility output. These were only partly offset by strong vehicle output.

US

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