In the compartmentalised world of information constructed by former US defence secretary Donald Rumsfeld, this is a week for "known knowns" rather than the more common "known unknowns" in the Australian economy.

It is also an important week with most eagerly anticipated Reserve Bank board meeting (Tuesday) since the last one and the release of latest measure of economic growth in the first quarter (Q1) National Accounts (Wednesday).

The market has pencilled in a 0.25 percentage point cut from the RBA as a "known known".

It has been sitting at a 100 per cent certainty for pretty well the past fortnight, although lessons on assumed known knowns can drawn from a betting agency paying out on a Labor win ahead of the result last month.

Roman statesman, general and philosopher Pliny the Elder would probably chip in with "The only certainty, is nothing is certain" — a quote that sadly doesn't cut in these days demanding absolute, black and white certainty and opinion.

The "unknown unknown" is what happens next? Is it a one-and-done cut? Unlikely.

Two cuts before the end of the year is the market favourite.

Four cuts into next year, taking the official cash rate to 0.5 per cent, is gaining traction in the market, but still an outlier.

The big French investment bank Societe Generale split the difference and had a punt on three cuts; two in pretty quick succession for domestic issues and third deep into next year on a gloomy global worldview.

"The cut in June and 3Q 2019 would address current concerns regarding weak growth and low inflation, while the 3Q 2020 cut would likely be a response to the anticipated US recession," Societe Generale told its clients last week.

A US recession — and the associated global contagion — would be another level of worry, particularly as by stage the RBA would have just about exhausted the conventional monetary arsenal it keeps for such contingencies.

GDP remains soft

You could put GDP growth in the 'known known' basket as it is certain to be weak.

The known unknown is just how weak, but on an year-on-year basis it will be mostly likely the slowest growth since the depths of GFC.

There are still some key numbers to be published, but so far in the first three months of 2019 the 'unknown knowns' that have been moved to the known known column have all been pretty poor.

Retail sales: -0.1 per cent Q3 2019 compared to a flat Q4 2018

Retail sales: -0.1 per cent Q3 2019 compared to a flat Q4 2018 The value of construction work: -1.9 per cent compared to +2.1 per cent rise Q4 2018

The value of construction work: -1.9 per cent compared to +2.1 per cent rise Q4 2018 Private new business investment: -1.7 per cent compared to +1.3 per cent Q4 2018

On the positive side, a record trade surplus over the first quarter should see net exports add a bit to GDP, although the drop in imports doesn't help the quality of the result.

As well, public sector spending continues to prop things up with a stark public versus private divide developing in the economy.

Public demand — spending on things such as health and public transport infrastructure — grew at more than 6 per cent last year. Private demand was moribund and essentially didn't grow at all in the second half of 2018.

A weaker construction sector is expected to outweigh the contribution from net exports ( Flickr creative commons: Charles Van den Broek )

UBS economist George Tharenou didn't try to sugar coat his forecast.

"Q1 real GDP building blocks look terrible," Mr Tharenou said.

"Public construction appears to be peaking, despite the rhetoric of an infrastructure boom. Q1 private capex surprisingly dropped, and the intentions for 2019/20 are modest at best," Mr Tharenou wrote in a research note.

"After a retail recession and weak car sales, this led us to downgrade our GDP forecast again to 0.3 per cent [for the quarter] and 1.6 per cent [over the year], still with downside risk."

Mr Tharenou's forecast is more downbeat than others, but only slightly.

The consensus is GDP grew by 0.4 per cent, which is a bit of a lift from the sullen 0.2 per cent in the final three months of last year. The RBA's rosier, but hardly robust outlook is for 0.6 per cent growth.

Any of those results will be enough deliver the weakest 12 months GDP growth since Australia ground out growth of around 1.5 per cent through 2009.

Help may be on the way in form of some interest rate and tax relief, but Mr Tharenou says it is important to remember what we thought we knew about the economy appears to be wrong.

"While some may argue it [Q1 GDP] is backward looking, we think to assess the outlook the 'starting point' is key," he said.

"Indeed, domestic data is still materially weaker and can't be completely ignored as 'pre-stimulus'. The list of 'bad data' to feed the bears is getting longer."

An abbreviated version of the list includes credit growth sliding to a 6 year low, residential housing approvals at a 6 year low, rising unemployment, weak employment intentions and forward orders.

Throw in a budget forecast indicating public sector wages are likely to slow sharply and the minimum wage rose less than last year, and wage growth is not about to rebound anytime soon.

That means consumer spending is more than likely to remain muted as a fair bit of the tax handbacks will be squirreled away as savings.

Then there's the biggest "known unknown" of the lot; will the US/China trade skirmish descend into a full-tilt trade war and blow up the global economy? Maybe, maybe not.

"So when we do the best we can and we pull all this information together, and we then say well that's basically what we see as the situation, that is really only the known knowns and the known unknowns." Donald Rumsfeld

Trillions disappear in trade battle

May proved to be a very difficult month for global equity investors, with markets dropping a lazy $US4 trillion as optimism over a trade detente slipped into pessimism.

Adding to the tensions, US President Donald Trump shifted his gaze from the eastern flank of his operations to the south, ambushing Mexico with a 5 per cent tariff.

The threat is explicit; the import tax will be gradually jacked up to 25 per cent until illegal immigration is stopped.

As the US Commerce Department website points out, trade with Mexico is a big deal.

"Two-way trade in goods and services totalled $US623 billion in 2017, and this trade directly and indirectly supports millions of US jobs," the US International Trade Administration's website notes.

In military terms, those millions of jobs would be described as collateral damage — that is how tariffs and trade wars work.

Not surprisingly the Mexican manoeuvre drove a new wave of Wall Street selling on Friday, an ugly end to a month where the S&P500 fell 6 per cent

The ASX made a marginal gain in May, but looks like starting June in retreat.

Markets on Friday's close: ASX SPI 200 futures -0.4pc at 6,378, ASX 200 (Friday's close) -0.1pc at 6,397

ASX SPI 200 futures -0.4pc at 6,378, ASX 200 (Friday's close) -0.1pc at 6,397 AUD: 69.4 US cents, 62.1 euro cents, 54.9 British pence, 75.1 Japanese yen, $NZ1.06

AUD: 69.4 US cents, 62.1 euro cents, 54.9 British pence, 75.1 Japanese yen, $NZ1.06 US: Dow Jones -1.4pc at 24,815 S&P500 -1.3pc at 2,752 NASDAQ -1.5pc at 7,453

US: Dow Jones -1.4pc at 24,815 S&P500 -1.3pc at 2,752 NASDAQ -1.5pc at 7,453 Europe: FTSE -0.8pc at 7,162 DAX -1.5pc at 11,727 EuroStoxx50 -1.1pc at 3,280

Europe: FTSE -0.8pc at 7,162 DAX -1.5pc at 11,727 EuroStoxx50 -1.1pc at 3,280 Commodities: Brent oil -3.6pc at $US64.47/barrel, Gold +1.3pc at $US1,305/ounce, Iron ore $US103.50/tonne

Oil on the skids

A big casualty of the renewed anxiety over trade are oil producers.

Oil prices slid more than 3 per cent on Friday, not surprising given US refiners bring almost 700,000 barrels a day of crude across the border and a 5 per cent tariff adds around $US2 million a day to their costs.

The global oil benchmark, Brent crude, fell more than 10 per cent over May (US oil fell 16 per cent), something that may surprise motorists in Melbourne who are currently filling up at close to $1.70 a litre.

Industrial metals also trekked down on fears demand would drop if the global economy slows. Copper fell 1 per cent, nickel fell more.

Iron ore remains the exception, largely due to supply issues and tighter inventories at Chinese ports.

Iron ore stockpiles at Chinese ports are shrinking, driving up prices. ( Reuters )

The amount of iron ore stockpiled is down around 10 per cent since the start of the year.

ANZ commodities analyst Daniel Hynes said the Chinese market looks like being around 40 million tonnes short on its needs this year.

"Going forward, we are expecting inventories to continue to fall as swing producers struggle to respond to the tightness in the market," Mr Hynes said.

"We now expect prices to stay elevated for the remainder of the year, with any further delays to Vale's Brucutu mine increasing the risk of further spikes in the spot price."

This week

The RBA decision and GDP numbers pretty well blot out everything else this week, but there are still other some bits of data worth studying.

CoreLogic's May house price survey (Monday) is expected to show another leg down, while at the other end of the week April home loan figures (Friday) are also likely to be weak.

Retail sales (Monday) are unlikely to be great, dragged down by the great property retreat.

For the optimists there's always trade data (Thursday). There's an outside chance a monthly surplus in excess of $5 billion could be delivered for the first time.

Australia

Date Event Forecast/comment Monday 3/6/2019 House prices May: CoreLogic series likely to show another 0.5pc slide nationally over May Business indicators Q1: Another GDP partial expected to show a strong mining driven profit lift & small contribution from inventories Tuesday 4/6/2019 RBA rate meeting A 25pc is as good as banked. If not market reaction may be interesting Retail sales Apr: Likely to be weak again with numerous headwinds buffeting the sector before the election Current account Q1: Booming trade surplus likely to cut current account deficit to just $1.7bn and boost GDP RBA speech Governor Philip Lowe addresses a business dinner in Sydney Wednesday 5/6/2019 GDP Q1: Growth over the year of 1.7pc expected, slowest since the GFC Thursday 6/6/2019 Trade balance Apr: Another big surplus. Could be a fresh record around $5bn, thanks to strong iron ore rebound post cyclonic interruptions Friday 7/6/2019 Housing finance Apr: Likely to decline again, but post-election data will be more interesting

Overseas

Date Event Forecast/comment Monday 3/6/2019 US: Manufacturing survey May: ISM survey likely to show small pick-up in activity, still expanding CH: Manufacturing survey May: "Unofficial" Caixin survey following Friday's weak official data. Trade sanctions are biting Tuesday 4/6/2019 EU: Inflation May: Disappointing economic activity likely to drag it down again, after a flicker of inflation in April Wednesday 5/6/2019 EU: Retail sales Apr: A slight pick-up expected Friday 7/6/2019 US: Jobs & wages May: Non-farm payrolls +200K, unemployment 3.6pc driving up wages a bit more



