What to watch next week
The key data release in Australia next week will be the labour force report. Employment growth through much of 2018 was solid and resulted in a decline in the unemployment rate. This will need to continue in this December read and throughout 2019 if we are to see the labour market tighten and sustainable wages growth emerge. The RBA needs to see this wages growth before it considers raising rates.
Other important data will be out of China with retail sales, fixed asset, industrial production and GDP data all released. Chinese data is always key for Australian markets and most interest will lie around whether there has been a further deceleration of growth, from 6.5% year on year in the economy. Recent stimulus measures by the Chinese authorities should be supportive, however deleveraging measures and trade uncertainty with the US will weigh on growth.
Despite some scheduled releases of data in the US, for example retail sales, these may be delayed by the government shutdown.
Central banks in Europe and Japan meet next week, no shift in policy is expected from either but the tone of press releases will be scoured for any shift in tone. This is particularly true for the ECB where economic indicators have softened materially.
The outlook for markets
Markets will be looking for weaker data in Australia despite economist expectations for further solid employment growth. Late 2018 was characterised by a marked shift in the assessment of the Australian economy and the prospect of the RBA being able to raise rates anytime soon.
Markets will likely react materially to any shift in the data to confirm this assessment and confirm bearish pricing on the prospect of the next move from the RBA being down rather than up. Chinese data will be important particularly for FX markets that would sell off on any weakness in key reads.
On investors’ radars
Aside from the data flow, news flow will be important also, particularly given the high degree of uncertainty gripping markets. News on the Brexit turmoil in the UK will be important, as will any progress out of the US on the government shutdown.
There is also the meeting of key global policy-makers in Davos for the World Economic Forum which may produce a headline or two (although US President Trump and UK PM Theresa May will not be attending due to domestic priorities). We also have earnings season in the US which will be important for equity markets and sentiment going into 2019.