With a week to go before we learn of our interest rate fate, the big guns are telling us it’s a done deal. But is it really? The biggest gun to tip a cut is Commonwealth Bank chief executive Matt Comyn, who’s going further to say we can expect more cuts this year as inflation is on the slide.

The honkies in financial markets are betting that a rate cut is a past-the-post winner, despite President Trump pausing on his tariff terrorism for 90 days, which has helped the stock market rebound like the US and China are going to kiss and make up!

S&P/ASX 200

Trump started spooking markets around mid-February when the S&P/ASX 200 was at 8555.80. The fear and loathing linked to the brewing trade war saw the index fall to 7343.30, which was a 14.7% wack to those investors fully invested in the market. The index is now at 8279.60 (graph above), which is a nice bounce-back!

But in my view, a spooked RBA board that decides to keep rates on hold next week risks swinging the already anemic economy into a proper recession. Sure, some economic data, such as the latest wages data that went from 2.9% last quarter to 3.7% in the March quarter, is a bit on the high-side, but as AMP economist Diana Mousina pointed out: “the overall trend in wages growth is still down and it’s hard to see the unemployment rate going down from here, so we think the RBA will conclude that current wages growth is still in line with its 2-3% inflation target.”

Mousina is tipping a 25-basis point interest rate cut at next week’s RBA Board meeting, which would take the cash rate of interest down from 4.1% to 3.85% and will lead to mortgage rates falling by the same amount (once your banks decide to pass it on, that is).

The chart above shows the Leading Indicator of Wages Growth (the red line) is really on a slide. This is what the RBA board is studying closely right now.

Ivan Colhoun, chief economist at CreditorWatch (who’s also in firmly in the rate cut camp), looked at an important indicator for the health of the economy: NAB’s business conditions index. This indicator fell to +2 in April, which he said was “the lowest since the first COVID lockdown”. Yeesh.

He also noted that “capacity utilisation dropped sharply, returning to long-term average levels for the first time since mid-2021”. Calhoun also says:: “at face value, the continued easing in business conditions supports a further interest rate reduction by the RBA at its Board meeting next week.”

Meanwhile, his take on the consumer sentiment suggests a rate cut is overdue.

“Consumer sentiment rose 2.2% in May, reversing one-third of April’s decline, yet overall sentiment remains moderately pessimistic due to persistent cost-of-living pressures,” Colhoun explained.

The last reading of annual economic growth was 1.3%, which is a low figure, so if the RBA holds out on a rate cut, it would be a big mistake.