Tomorrow’s RBA minutes are expected to detail the reasoning behind the increase and extension of the term funding facility (TFF) at its September meeting. Originally slated to end in March 2021, the TFF was extended to June 2021, allowing banks to access cheap credit for another 3 months. Further, banks are now able to draw upon a “supplementary allowance” worth 2% of credit outstanding; this is worth a total of $57 bn. This brings the total amount of funds available under the TFF to $209 bn.
The Minutes should provide additional detail on the RBA’s motivation for these tweaks. The Minutes may also contain a discussion of further monetary policy options the RBA is considering, if needed.
NAB’s view remains that the RBA will keep the cash rate and 3-year yield target unchanged for the foreseeable future. However, the risk is that the RBA will ease further if the economy does not steadily recover as it forecasts. The key risks here are that unemployment remains elevated or that activity remains weak following further lockdowns.
Further, while not NAB’s central forecast, the RBA could make further tweaks to its yield curve control programme (YCC) and TFF. In particular, on YCC it could increase bond purchases, for maturities around 5 to 7 years. The aim of such a tweak to the RBA’s current yield curve control would be to keep the yield curve from steepening. With many businesses borrowing in the range of 3 to 5 years, this would provide greater confidence that borrowing costs would stay low.
Also from the RBA this week, the Head of domestic markets, Marion Kohler, speaks at an AFMA conference on Thursday. Kohler is unlikely to provide any policy guidance. Instead, we expect she will focus on the impact of the RBA’s market operations.
On Thursday, labour force data for August should show the impact of the unprecedented stage 4 lockdown in Melbourne. These measures included the mandatory shut down or slowdown of a number of industries, which likely resulted in a large number of job losses. Elsewhere, we will also monitor how employment continues to recover in states with little or no virus spread, but closed interstate borders.
NAB forecasts total employment fell by 40k in August, as falls in Victoria offset small gains elsewhere. This should see total hours worked fall again, while the unemployment rate is expected to rise to 7.8%.
In Victoria, Premier Andrews is expected to make an announcement in the next week on support for businesses impacted by extended restrictions in the state.
The Fed takes centre-stage on Wednesday, where markets will be looking for chair Powell to elaborate on the shift to average inflation targeting. Stock market stability providing, this could renew downward pressure on the USD. Key data releases come Tuesday via the New York Empire manufacturing survey for September and August industrial production. August retail sales are released Wednesday, with University of Michigan preliminary September sentiment rounding out the week on Friday.
Key monthly activity indicators of industrial production, fixed asset investment and retail sales are on Tuesday. All focus will be on retail sales given the lacklustre bounce to date compared to industrial production. Retail sales are expected to be flat y/y in August, while industrial activity is expected to remain strong.
The focus will be on the renewed stand-off between the UK and EU over trade and the implicit threat of legal action over the UK’s decision to unpick the previously agreed Withdrawal Agreement. Amid a vacuum on what happens next, GBP is increasingly at risk as investors ponder a No Deal exit. BoE meeting on Thursday is expected to see rates kept on hold.
Industrial production is expected to expand 4.2% in July, which would be the third consecutive month of expansion if at a slower pace than recorded in May and June.
Japan’s ruling party elects a new leader today, following the stepping down of PM Shinzo Abe. The BoJ meets on Thursday and should keep rates on hold.
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