Reserve Bank may hike rates sooner: UBS

Economists at UBS have brought forward their expectations of an interest rate hike by the Reserve Bank.

During the week, all eyes will be on the start of the profit reporting season.

Economists at UBS have brought forward their expectations of an interest rate hike by the Reserve Bank.

Pointing out that the 7 per cent rise against the US dollar since May has had a “modest dampening effect” on the economy, the central bank on Friday cut its growth forecast for 2017 and 2018 by a total of 0.75 percentage points in its latest quarterly statement. However, it increased projected growth beyond 2019 to 3.5 per cent a year.

“They have now turned even more bullish on the outlook, predicting years of above-trend 3.25 per cent-plus growth ahead,” said UBS economist George Tharenou.

“We continue to expect the RBA to hold rates until the second half of 2018, but their bullishness in the face of a much higher Australian dollar and looming housing correction raises the risk of an earlier hike,” Mr Tharenou said.

The RBA has left the cash rate at a record low of 1.5 per cent at its monthly board meeting.

The Australian stockmarket is expected to open today higher by 25 points, reversing some of Friday’s losses.

The main driver is US payroll figures that showed good jobs growth in the world’s biggest economy.

AMP Capital chief economist Shane Oliver said the weekend figures showed 209,000 jobs were created in the US in July and the unemployment rate was 4.3 per cent. He said the strong figures and low wages growth, of just 2.5 per cent, will result in the US Federal Reserve continuing its gradual tightening of monetary policy.

“So that combination of good growth but relatively low inflation is something the sharemarket likes. It’s almost like a Goldilocks economy — not too hot, not too cold, but just right,” Dr Oliver said. “Not so good for workers, but it’s good for the companies.”

The rise in the iron ore price is another factor. It rose 7.8 per cent last week to $US74.10 per tonne on Friday.

It all points to reasonable start to the week for the ASX, but share trading will start slowly due to today’s bank holiday in NSW.

During the week, all eyes will be on the start of the profit reporting season. One to watch is Commonwealth Bank’s full-year results on Wednesday.

The bank is expected to report another record profit. Its share price fell 3.6 per cent to $80.72 last week after it was revealed on Thursday the federal government’s financial intelligence unit, Austrac, had accused the lender of more than 53,000 breaches of Australia’s money laundering and counter-terrorism financing laws.

Other data the market will be watching includes the NAB’s business survey tomorrow and Westpac’s Consumer Confidence Index on Wednesday.

Globally, China releases its trade figures today.

At the close on Friday the benchmark S&P/ASX200 was down 14.5 points, or 0.25 per cent, at 5720.6 points, while the broader All Ordinaries index was down 13.5 points, or 0.23 per cent, at 5773.3 points.

Additional reporting: AAP