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Next Week At A Glance – 24-28 Jan 2022

Weekly Reports | Jan 21 2022

This story features RESMED INC. For more info SHARE ANALYSIS: RMD

By Rudi Filapek-Vandyck, Editor FNArena

January's sudden reversal in market momentum is the direct result of financial markets' realisation that central bankers will have to accelerate their tightening intentions with covid interruptions and price inflation to stick around for longer.

What seemed like a logical one-off once societies opened up without pre-warning international supply chains has now turned into the threat that higher inflationary expectations might become embedded in consumers' and workers' minds. And once the genie is let out of the bottle, it might turn into another type of challenge for tomorrow's central bank policies.

In Australia, the focus is now firmly on the RBA as governor Philip Lowe has remained remarkably stoic in his view that interest rates won't (have to) move anytime soon. Yet, the team of economists at ANZ Bank predicts quantitative easing will be announced at next month's RBA meeting, and the prospect of hiking the ultra-low cash rate later this year would have to be under serious consideration by now.

ANZ Bank, of course, is far from the only one with such view. The team at Westpac equally reported this week the RBA is expected to announce the cessation of its bonds purchasing program altogether on February 1st, when the RBA board meets next.

What seems to have changed the debate is a much stronger labour market; much, much stronger than most had predicted. Hence, the renewed market conviction that an explicit decision to move to quantitative tightening is likely on the table for the February RBA meeting. The Q4 CPI report in the week ahead may be all that is left to seal the deal, so to speak.

As pointed out by the team at National Australia Bank this week, the latest read on unemployment in Australia saw the overall rate decline to 4.2%, its lowest since August 2008 and before that we have to go back to the 1970s to see an unemployment below 4%.

If ANZ Bank's gutfeel is anything to go by, the RBA will continue to emphasise patience, but its the central bank's forward guidance on interest rates that needs to shift. Expect bond traders to get really, really excited when that occurs. There will be a general sense of "did we tell you, or what?"

Westpac now predicts the first RBA rate hike in August, but all-in-all suggests more flexibility at the RBA seems but the logical approach given this year's general context. ANZ Bank economists are of the view that hiking the cash rate in early 2023 will likely become Lowe & Co's central scenario, with a pull forward into 2022 no longer ruled out.

The number one major event for the week ahead is without any doubt the FOMC meeting in the US, followed by the releases of US Q4 GDP and personal consumption expenditure (PCE) price index for December on Thursday and Friday respectively. A strong PCE print will likely reinforce expectations of a US rate hike as early as March.

In Australia, as mentioned, the Q4 CPI release on Tuesday might turn into a Big Event, with business conditions for December to be released on the same day. All throughout the week resources companies will continue releasing their trading updates for the December quarter and by Friday the local reporting season will -sort of- take off as ResMed ((RMD)) reports its quarterly from the US.

On Wednesday Australia celebrates Australia Day.

A more detailed calendar is available on the website: https://www.fnarena.com/index.php/financial-news/calendar/

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