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Australian interest rates to steal the spotlight amidst market developments

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2023-11-06

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Australian interest rates are set to dominate the financial markets, overshadowing offshore events. The Wall Street-driven rebound this week could prompt unfavorable comparisons if the Reserve Bank raises rates on Tuesday.

In addition to bank profits from Westpac (today) and the National Australia Bank (Thursday), discussions will focus on the implications of these figures and potential rate hikes in home loan rates following the RBA's decision.

The RBA is widely expected to raise its cash rate by 0.25% tomorrow, despite a limited case for such a move, driven by concerns about inflation persistence.

Recent data, including the final retail sales data for the September quarter, reveals a decline in retail price inflation to an annual rate of 3.75%, down from 7.4% in the previous year.

The post-meeting statement from Governor Michell Bullock will be closely watched for a rational explanation of the decision, along with hints about updated economic forecasts to be released in Friday's 4th Statement on Monetary Policy.

Shane Oliver, Chief Economist at AMP, anticipates a rate hike due to higher underlying inflation, sticky services inflation, and robust demand fueled by population growth.

The IMF's revision of its inflation forecasts and call for further rate hikes align with RBA's views, according to Dr. Oliver.

However, AMP views the decision as finely balanced, with a 60% probability of a rate hike on Melbourne Cup Day, though the money market suggests a 51% chance on Tuesday and a 100% chance by February.

In any case, the RBA is likely to emphasise the need for "some further tightening of monetary policy."

Other financial updates include Westpac's full-year results today, National Australia Bank's release on Thursday, and upcoming reports from ANZ, Orica, and Xero.

China's October inflation is expected to remain stable, with a slight 0.1% increase in CPI, while PPI may decline by 1.6%.

Dr. Oliver predicts deflation in consumer prices (-0.2%) and producer prices (-2.9%).

Trade figures from China for October are also expected to be weak.

Meanwhile, U.S. markets continue to react to the belief that the Fed will not raise rates again, with anticipation building around the upcoming "dot plot" meeting in mid-December, which will reveal interest rate projections.

The September quarter earnings season continues, with reports from News Corp and The New York Times, as well as updates from various international companies.

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