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Predictions and what to watch for the week ahead

Shane Oliver

Lowering interest rates, a recovering housing market and foreign tensions will dominate markets this week for Australian investors.

Australian markets

Official cash rate to fall

Domestically, many economists are predicting the official cash rate will be reduced to 1.25 per cent after the Reserve Bank meets tomorrow.

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Fund manager Wilson Asset Management believes there is a 95.1 per cent chance of a rate cut tomorrow.

Chief economist for AMP Capital Shane Oliver said slow wage growth, soft credit growth and falling building approvals will likely lead to a rate cut from the RBA.

Further, the latest data from AMP suggests that rates will continue to be cut falling to 0.5 per cent by mid next year.

Housing markets

AMP is not predicting the quick bounceback in the housing markets, despite rates continuing to fall. In saying that, Mr Oliver predicted a softer landing for the housing markets under the Coalition compared to the Labor Party.

Australian shares

Share markets are likely to see a further pull back in the short term due to uncertainty about trade and weak economic data, according to Mr Oliver.

Overseas markets

The S&P 500 Index fell to a 12-week low due to further tensions between the two economic powerhouses, the United States of America and China. US shares lost 2.6 per cent last week.

China accused the US of “economic terrorism, economic hegemony and economic chauvinism”, with the US in no hurry to end the trade war despite the continued inversion of the US treasury bond yield curve, which is traditionally a sign of an upcoming recession.

Mr Oliver believes the United States is moving its focus away from China and towards Mexico as the Trump puts a 5 per cent tariff on Mexico, which will rise to 25 per cent unless it stops illegal immigration.

The losses were felt globally as the Eurozone fell by 2 per cent and Japanese shares falling by 2.4 per cent.

Chinese shares rallied due to the prospect of new government initiatives aimed at stimulating the economy, rising by 1 per cent.

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Predictions and what to watch for the week ahead
Shane Oliver
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