The week that was & the week ahead

The week that was      

Wage growth remained moribund in the September quarter, with the Wage Price Index up just 0.5 per cent for an annual rise of 2.0 per cent. In the scheme of wages history in Australia, it is a very weak result, made all the more problematic by the effect of the increase in the minimum wage set by Fair Work Australia which added about 0.2 percentage points to the rise. Without that, annual wages growth would have plumbed to a fresh record low.   

Wages matter, as RBA Governor Lowe has recently noted. Household incomes are the weak link in the economy at present which is feeding into the sluggishness in consumer spending, which is also being held back by high debt and lower savings. Until wages growth picks up, consumers are likely to remain constrained in their spending and with that, bottom line GDP growth will struggle to lift to a trend pace any time soon. 

Source: Westpac

The week ahead

The minutes of the most recent meeting of the US Federal Open Markets Committee are to be released next week. With the market pricing in a December interest rate hike in the US, insights from the interest rate setting Committee will be raked over for clues on the likely path of monetary policy over the more medium term.

Also in the minutes will be discussion of the unwinding of the US$4.5 trillion Fed’s balance sheet that was built up during the economic crisis, as quantitative easing was rolled out. The Fed has indicated that it will start with a US$60 billion a month unwinding of QE. As this unfolds, the Fed will monitor how markets absorb the mix of bonds being sold back into the market, in concert with the higher interest rate structure.

To date, with the US stock market scaling record highs and bond yields edging up in an orderly fashion, it is safe to say the Fed is managing these policy changes well. That said, the fickle nature of markets is such that some future policy tightening could be the straw that breaks the camel’s back, which of course is why markets are always on edge.

Source: Investopedia