December 05, 2011
POLITICAL leaders will intensify efforts to save the eurozone this week, as economists remain split on whether the Reserve Bank will cut official interest rates tomorrow for the second consecutive month.
Growth figures for the September quarter, to be released on Wednesday, as well as November employment data on Thursday, are expected to reinforce a mixed economic picture for Australia.
After six central banks injected US dollar liquidity into the ailing European banking system last week, global markets rallied, with local equities up 7 per cent.
However, the local sharemarket is expected to take a breather today, waiting for the RBA's rate decision, the release of key economic data and the latest efforts by European leaders to halt sovereign debt contagion.
On the ASX 24, the December share price index futures contract is indicating a 3-point, or 0.07 per cent, fall to 4295 points.
On Friday, the benchmark S&P/ASX200 index closed up 59.4 points, or 1.4 per cent, at 4288, while the broader All Ordinaries index was 58.2 points, or 1.36 per cent, stronger at 4346.3.
France and Germany are today set to release an outline of a rescue package for the euro involving so-called "fiscal union".
If the reforms are seen as a credible guarantee that European governments will rein in their deficits, European Central Bank chief Mario Draghi has suggested that "other elements might follow".
This has been interpreted to mean that the ECB might intervene to protect European banks and purchase bonds to haul in galloping interest rates.
While outlines of the plan for fiscal union have started to emerge, the details are set to be negotiated during an EU summit that begins today and concludes on Friday. Locally, opinion remains divided on whether the RBA will slash rates again, after it announced a 25 basis point easing on Melbourne Cup day.
HSBC economist Paul Bloxham said the central bank would not be considering another rate cut "on domestic grounds".
The economy was multi-speed, but overall it was in an upswing.
"But the global outlook is shaky," Mr Bloxham said.
"The risk that the eurozone financial crisis morphs into a global recession has increased.
"Global risks could be used to motivate a cut, particularly if the RBA expects that growth in Asia will slow by more than previously expected on the back of financial contagion, or that bank offshore funding strains could lead to an Australian credit squeeze."
On balance, Mr Bloxham said, it was a close call, but the RBA was likely to keep rates on hold at 4.5 per cent.
Westpac chief economist Bill Evans, who was almost a lone voice in July when he predicted rate cuts, said Tuesday's decision would be "finely balanced".
"But our assessment is that conditions have deteriorated significantly in Europe and Asia since the last board meeting," Mr Evans said. The best policy, he said, would be to cut official rates by a further 25 basis points.
Mr Evans said GDP growth in the September quarter was likely to have been 1.3 per cent, after 1.2 per cent growth in the three months to June.
The mining industry is again expected to have provided the main impetus. The unemployment rate, which fell marginally to 5.2 per cent in October from an upwardly revised 5.3 per cent in September, is expected to rise to 5.3 per cent again.
Article by Richard Gluyas From:The Australian