A series of confidence reports in the next week will capture the mood of Australian consumers and business.

But after two interest rate hikes in two months, combined with rising cost of living pressures, it’s hard to imagine either group will be punching the air, particularly as the Reserve Bank has warned further increases are to come.

Economists are already busily downgrading their economic growth forecasts in the face of what could now be a rapid rise in interest rates by the RBA as it is tries to rein in inflation, including a further 50 basis point increase in July.

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“The risk is that the RBA decides it is behind the curve and hikes rates more than we expect – and closer to market pricing of a 3.8 per cent cash rate in a year’s time – which would likely cause a recession,” AMP senior economist Diana Mousina said.

The official cash rate now sits at 0.85 per cent.

The Commonwealth Bank household spending intentions index for May, due on Tuesday, kicks off a shortened economic data week due to the Queen’s Birthday holiday in many jurisdictions on Monday.

The survey – which analyses CBA payments data, loan applications and publicly available search activity on Google Trends – dropped 3.8 per cent in April after reaching a record high in March.

The monthly National Australia Bank business confidence index for May – a guide to future investment and hiring – is also due.

It will capture the impact from the federal election, which should be a positive with Labor securing a majority, rather than the uncertainty of a minority government which had been an earlier concern.

However, rising interest rates and inflation will likely weigh on confidence.

Two consumer confidence surveys are due on Wednesday, guides to future household spending.

The weekly ANZ-Roy Morgan confidence index – delayed a day due to Monday’s holiday – dropped to its lowest level since mid-August 2020 last week in the face of escalating price pressures.

The broader monthly Westpac-Melbourne Institute consumer sentiment survey also fell to its lowest level in around two years last month.

The Australian Bureau of Statistics will release its crucial labour force report for May on Thursday, which could see the unemployment rate nudge down to 3.8 per cent, which would be the lowest level since August 1974.

However, economists’ forecasts for the jobless rate, which edged down to 3.9 per cent in April, range from 3.8 per cent to four per cent.

Their predictions also point to a 25,000 increase in the number of people employed in May, although again forecasts range from flat to a rise of 40,000.

Just 4000 people joined the workforce in April.

At this stage, Australian shares look set to remain under a cloud when financial markets open on Tuesday after Wall Street tanked on worse than expected US inflation figures on Friday.

Annual US inflation accelerated to 8.6 per cent in May from 8.3 per cent in April, when the market was hoping it had slowed and passed its peak.

It saw the US S&P 500 plunge 116.96 points, or 2.9 per cent, to 3,900.86.

The Dow lost 880.00 points. or 2.7 per cent, to 31,392.79, and the Nasdaq tumbled 414.20, or 3.5 per cent, to 11,340.02.

Australia share futures sank in sympathy, down 112 points or 1.61 per cent, to 6816.

The Australian benchmark S&P/ASX200 index finished Friday down 87.7 points to 6,932.0, a fall of 1.25 per cent.

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Peter Fray
Peter Fray
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