Asian markets had been quiet this morning. The paucity of economic indications focused attention on central banks, with investors attempting to second-guess RBA, Fed, and ECB monetary policy choices. The RBA stunned markets this morning by raising interest rates by 25 basis points to 3.85%.
While inflation has peaked, an annual rate of 7% is still too high. Despite lower Q1 inflation figures, the Board determined that a further increase in interest rates had to be raised to get inflation back on track in a fair amount of time. Inflation is anticipated to be 4.5% in 2023 and 3% in mid-2025, according to central predictions. While inflation in goods prices is slowing, however inflation in services prices remains very high, with upside risks. Unit labor costs are likewise rising rapidly, while productivity growth remains muted.
Another factor to consider was a highly tight labor market, with wage increases pushing inflation higher. Monetary policy may need to be tightened further to ensure that inflation returns to goal in a fair timeframe. The Board will keep a close eye on the global economy, consumer spending habits, and the outlook for inflation and the labor market. Notably, the Board will do everything it takes to get inflation back on track.
RBA Governor Philip Lowe stressed that the halt in rate hikes in April did not signal the end of the monetary policy tightening cycle.
Looking ahead to the US session, the US economic calendar is jam-packed. The consciousness will be on US JOLTs Job Openings and production Orders. We anticipate increasing sensitivity to labor market data in the run-up to the Fed’s interest rate decision. Economists predict a decrease in job postings from 9.913 million to 9.683 million. While the headline figure is important, quit rates must also be considered. A significant drop in the quit rate would indicate weakening labor market circumstances. Aside from the economic calendar, US corporate earnings and First Republic Bank (FRC) updates will have an impact on market risk sentiment. Pfizer Inc. (PFE), Starbucks Corp. (SBUX), and Ford Motor Co. (F) are among the major companies reporting profits in the United States.