RBA & FOMC Minutes Due
US markets followed most of Europe higher as the market continues to react positively to the rebound in manufacturing indices in the US and China. Fears of a new downturn in output have been allayed for the time being, but we expect most central banks to continue voicing caution over the economic outlook. The RBA is the first central bank scheduled to declare their position this week, and we see very little chance of a cut, especially after the improvement in Chinese numbers. Nonetheless, our economists note that figures from the housing and jobs front show that some cracks are appearing in the RBA’s ‘trend economy’, though probably not the levels to warrant fresh accommodation. Nonetheless, markets will likely be interested to see whether the RBA will be willing to take a leaf out of Norges Bank’s book and actively use policy to guide their exchange rate lower. However, in terms of rhetoric the RBA does not appear to be on Norges’ level yet, but both domestic and external conditions may warrant some finessing of their overall view on terms of trade and competitiveness. Elsewhere, the FOMC is due to release its latest meeting minutes, though it seems some of the details have been pre-empted by Fed Chairman Bernanke’s speech on March 26th. Our economists disagree with Bernanke’s view that cyclical forces have been the main driver for unemployment, which can be mitigated through ongoing accommodation. Debate within the Fed on this matter promises to remain lively, but FRB hawks are keen to make themselves heard and we continue to question how the FOMC can hold its current end-2014 view on normalization. As shown in our latest client poll, a majority of clients foresee normalization in 2013, though this is probably still contingent on US data managing to surprise to the upside. However, if the Fed does shift its view on the labour market towards structural issues (especially when political conditions are more favourable), then the rules of the game would have changed in favour of early normalization. However, this is probably still several quarters away and the Fed has shown the market that there is very little upside in trying to front-run policy without any clear communication from their side. Otherwise, on the data side it is a relatively quiet day. Australia will release retail sales figures ahead of the RBA decision, and factory orders numbers are due in the US.
Click here to read the full report: UBS Morning Adviser Asia
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