If first-quarter inflation data was the main attraction for local markets last week, the Reserve's Bank of Australia's response to the surprisingly low read-out is the focus over the next fives days.
1. Rates
The Reserve Bank of Australia's (RBA) policy-setting board meets on Tuesday and a slim majority of economists believe it will look through headline deflation and very low core inflation to keep rates on hold.
The key, they say, is the longer-range trend, and the fact that employment and business confidence are in relatively good shape. In any case, cutting the cash rate from to 1.75 per cent from an already-low 2 per cent would do nothing to spur more business investment and little for consumers either. If banks were to pass on a rate cut, it might just reignite undesirable house price inflation and little else.
Other analysts, however, say the RBA needs to get ahead of what is a worrying fall in prices before the trend becomes entrenched. They also say that with zero chance of stoking inflation, the RBA may as well give an economy which has proved resilient a little extra boost. Some see a cut on Tuesday, followed by another one in August or towards the end of the year.
2. Budget
Markets rarely react much to federal budgets, and this year's inaugural spending plan from Treasurer Scott Morrison, to be handed down on Tuesday night, should be no exception. However, the size and a direction of a deficit, and government spending aimed at firing up parts of the economy that might be flagging, will affect currency, bond and share markets to some degree.
The government has to borrow more or refinance to plug the fiscal hole? More debt issuance may help satisfy pent-up demand for Australia's AAA-rated paper and so make it cheaper.
And what about all the infrastructure investment being promised? That, too, will be debt financed, and construction and services companies will do the work. Indeed, any sort of stimulus should give a little boost to the Australian share market on Wednesday, all else being equal.
3. Banks
Finally, nothing speaks more about an economy's underlying stability than the bottom line of banks' profit and loss account. Australia's big four lenders are in relatively good shape, although their generous dividend policies under under threat as they shore up their balance sheets against a softening residential property market and a crackdown on risky lending.
Westpac has kicked off the latest round of half-yearly earnings from three of the four big banks, reporting early on Monday that its interim profit rose 3 per cent to $3.9 billion. Westpac will be followed on Tuesday by ANZ Banking and on Thursday by National Australia Bank. Macquarie reports on Friday.
While most analysts expect boards to maintain their highly prized dividends for this half, the results are tipped to show a lack of growth in dividends per share, and pressure on the payout ratios of ANZ and National Australia Bank. This contrasts with several years of payout growth before 2015, when capital rules were toughened.
The banks' ability to protect profit margins by increasing lending rates, something they did last year, will also be scrutinised by a market that has turned negative on lenders in recent months. They're sort of out favour with some politicians as well: Opposition leader Bill Shorten has made a Royal Commission into banks' practices an election promise.
