Domestic data has been thin, but comments from RBA Deputy Governor Andrew Hauser at a fireside chat yesterday caught the attention of local markets.His tone struck us as relatively hawkish, which is not surprising given the firmer stance the RBA has taken in recent months.Hauser stressed that inflation pressures are “materially” worse than the RBA expected in August and that the outlook has deteriorated ahead of the November decision, adding that the breadth of price pressures in the CPI will also be key in the bank’s thinking. On the labour market, he noted the data has been a little weaker than expected, though Australia’s unemployment rate remains low by global standards. On growth,he acknowledged the economy is slowing but said a recession isnot expected. In our view, a solid Q3 CPI print next week would all but lock in another hike in November.
Looking ahead, flash PMI data is due on Friday. Further RBA communication is also on the way,with the Assistant Governor and Chief Economist due to be interviewed on 60 Minutes on Sunday. Alongside Hauser’s remarks, this looks like another attempt to prime markets for a potential rate rise and offer some nuance on the bank’s thinking ahead of the 3 November meeting.On this, we reiterate our view thatthe weight in the RBA’s thinking has shifted in recent months fromthe labour market towards inflation, as flagged in the latest minutes and now by Hauser. The bank has shown it is comfortable letting the labour market coo lgradually to bring inflation down,and the latest jobs data wasbroadly consistent with that. Asofter labour market gives the RBAmore room to wait and shows policy is working to cool demand.That said, Hauser’s comments suggest Q3 CPI will show inflation pressures remaining elevated. If the print comes in ahead of expectations, a November rate risei s firmly on the cards, even with aweaker labour market.
Globally, this week data has been relatively limited, with the key focus on Chinese GDP data for Q3, whichsurprised to the upside. Quarterly growth picked up to1.2% from 0.9%, lifting annual growth to 4.5% from 4.3%.The result kept Beijing on track to meet its 2026 target of4.5% to 5% and buys policymakers some time to liftdomestic demand into 2027. That support will be needed,as the boost from net exports is likely to fade with thetrade surplus back at record highs and many Chinesefirms increasingly building production offshore.Despite the relatively stronger growth for Q3, households continue to remain the weak link for the Chinese economy.Annual retail sales growth improved to 1.1% in September,but spending growth this year is running at only around a quarter of last year’s pace. The issue looks to beconfidence rather than cash, with households wary oftheir job prospects and wealth as home prices keep falling five years into the property downturn. Adding to this, China’s property sector also remainsincredibly weak, with property investment down more than 20% this year, largely as a result of weak demand. There are some positives for the Chinese economy, withindustrial production growing at a solid pace, borrowing costs remaining quite low and authorities starting to freeup bank lending capacity. Indeed, in our view, we thinkgrowth looks on track to hold around 4.5% this year.
In the US, data has been light, with housing and construction figures coming in softer than expected.Pending home sales fell 7.3% in September and are down12.6% on a year ago, while housing starts dropped 5.2%after a 5.9% fall in August. Higher borrowing costs look tobe weighing on buyer demand, and markets have paredback pricing for an October Fed hike slightly in response. That said, last week’s CPI showed headline and core inflation remain elevated, and underlying growth is stillsolid, suggesting price pressures may persist. Thissupports our view that further tightening is likely before year end, with one more Fed hike expected at theDecember meeting.Turning to the oil market, prices remain elevated, with Brent crude hovering around $110/bbl as traders weighed renewed peace efforts in the Middle East and Ukraine.Prices eased briefly on reports that the US and Iran werenearing a deal, but resumed their climb after Iran denied them.President Zelensky also described talks with the US inOslo as constructive, with a US envoy now set to travel toRussia. The Trump administration is keen to ease tensionsahead of the midterm elections, with energy prices a keyissue for voters.
