Daily Commentary BY THE CURVE TEAM –

Silly Season Continues Ahead of RBA

5th of December, 2017

The silly season continued on the second day of trade in December. Markets experienced another wild ride over the past 24 hours. The euphoric reaction to Senate passing of the tax plan over the weekend faded somewhat, leaving many to ask: where to next?

The USD, US equities and bond yields all opened up the week higher yesterday during the Asian session as markets got their first chance to digest the tax plan approved by the Senate. The local market however failed to fire, even with a number of ok data releases, suggesting the Australian economy did well last quarter.

Data out yesterday ahead of today’s RBA board meeting did little to sway forecasts for growth in the third quarter. Company profits and inventory data were largely inline with expectations. Barring any huge swings in the partial indicators to come, the markets forecasts of an annual rate of growth for the quarter are likely to remain unchanged at 3% for Q3.

The RBA when it sits down to discuss interest rates are unlikely to be phased by the exact number that the ABS released yesterday and are going to be more concerned with the continuing trend. A result of 3% or thereabouts will be enough to confirm to the RBA that growth is heading in the right direction and inline with their growth forecasts.

However while the outlook for growth is trending along nicely, concerns over consumption, debt dynamics, wages and inflation remain. As such we are unlikely to see any material changes to the RBA statement when it is released at 2:30pm this afternoon.

David Flanagan

Director - Interest Rate Markets