The Reserve Bank is expected to leave the cash rate on hold on Tuesday, despite concerns about weakness in the domestic economy and bigger problems ahead for the Australian labour market.
Nanjing Night Net

With most economists predicting that the RBA will leave the official cash rate at 2.5 per cent, Australian shares are expected to benefit from the certainty and climb higher on Monday, after posting a 4.2 per cent gain over the month of February.

The benchmark S&P/ASX 200 Index, which closed at 5404 points on Friday, is expected to rise 21 points on Monday, according to the SPI futures market.

In the US the S&P 500 Index has closed at a record for two straight days, erasing losses from January that were spurred by concern economic turmoil would spread from emerging markets as the Federal Reserve began reducing stimulus efforts.

But local market confidence could be destabilised by an avalanche of economic data this week. December gross domestic product figures come out on Wednesday, which are forecast to show only modest growth. And there are growing worries about jobs in the wake of Qantas announcing that 5000 jobs are to be axed.

”The risks to the outlook would be that the improvement we have been seeing in economic data is undermined by rising job insecurity,” UBS chief economist Scott Haslem said.

”The build-up of job losses in the car sector and Qantas is probably small in terms of the context of the overall labour market, but the impact on household sentiment and job security can be significant.”

Mr Haslem added that while he believed the Australian economy was on the verge of improvement, data showing rising unemployment and lower capex investment would induce the RBA to sound more dovish. ”I agree they won’t do anything [in March] and they will remain on hold but their comments are likely to remain more dovish.”

Before Tuesday’s RBA meeting, local investors will digest several important reports, including the AIG Performance of Manufacturing Index, house prices, new home sales and ANZ job ads, which are all due on Monday.

Helping shares post solid gains over February was a better than expected company profit season.

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