Josh Gilbert, market analyst at eToro, shares his three things to watch in Australia in the coming days.
AU cash rate
After October’s strong retail sales data and the eighth consecutive hold on interest rates in November, this Tuesday’s final rate decision for 2024 is highly anticipated, given the Reserve Bank will not convene again until February next year. But don’t expect fireworks: rates are staying on hold again.
Last week, October's retail sales data was released, showing a 0.6% increase month-over-month and a 3.4% increase year-over-year. This marks the third consecutive rise in monthly retail sales.
If this trend continues — and it almost certainly will with Black Friday and seasonal spending expected to influence the next two months of data — it could pose challenges for the RBA.
Australians seem to be resuming old spending habits, even amidst a high cost of living.
The implementation of Stage 3 tax cuts, economic relief measures, a decreased likelihood of future rate hikes and Black Friday sales seem to have boosted consumer sentiment and increased spending on discretionary items.
Additionally, with a tight labour market in place, the RBA is likely to remain concerned about inflation and may not see an opportunity for a rate cut in the near future.
With October's retail sales data showing stronger-than-expected results and increased spending anticipated in the next two months, along with trimmed mean inflation (the RBA’s main focus) rising slightly to 3.5% according to the October’s CPI data, it may be more challenging for the RBA to justify a rate cut until the middle of 2025.
AU employment
Australia’s labour market report for October was unsurprising, remaining steady at 4.1%, with the number of Australians employed increasing by 15,900. While this didn’t come as a shock to the Reserve Bank, the slowing pace of employment growth suggests that we may be coming to the end of the upward trend over the past couple of months, after employment growth recently hit a 16-month high.
With the number of newly employed Aussies starting to slow, unemployment is predicted to continue climbing into early 2025, and the RBA is forecasting that the unemployment rate will reach 4.3% by year’s end. With this in mind, the unemployment rate will likely rise to 4.2% this week.
While the unemployment rate stayed within the RBA’s target range for controlling inflation in October, maintaining this stability may be challenging as we await other key economic indicators.
Analysts estimate that approximately 19,000 new jobs will need to be created each month to keep the unemployment rate in a favourable position for the remainder of the year.
US CPI
It’s not a fun month to be Jerome Powell. The Fed chair is facing a dilemma in the wake of the central bank’s move to cut rates.
Positive wage growth has kicked off, climbing prices at the checkout, diminishing the argument for further rate cuts. Further shock to the labour market – for example an immigration crackdown, would only worsen the problem.
Right on cue, Trump’s presidential inauguration is imminent. Comments made by the incoming president indicate that he will not hesitate to turn sticky inflation into a personal attack on Powell, even if it’s Trump’s own policies that worsen inflationary conditions.
Despite being Trump’s own pick for central bank head, the two have often been at odds and with no power to fire the Fed chair directly, history tells us Trump will lean on blame, social media and press sentiment to put pressure on Powell, should CPI data continue to paint a bleak picture.
Of course, the Fed is data-dependent and will make decisions accordingly but if core CPI inflation continues to dance above the 2% target, the interest rate dilemma will get worse for Powell.
Expectations are for headline CPI to rise to 2.7% from 2.6% the month prior, while core inflation is set to rise to 3.3% year-over-year, holding steady from October.