Reserve Bank governor Philip Lowe's thesis that the "economy may have reached a gentle turning point" looks like getting a brutal reality check.

Key points: Unemployment is forecast to tick up to 5.3pc when the July figures are released on Thursday

Unemployment is forecast to tick up to 5.3pc when the July figures are released on Thursday Wage growth is expected to flatline, putting the RBA under more pressure to cut rates sooner rather than later

Wage growth is expected to flatline, putting the RBA under more pressure to cut rates sooner rather than later Trade tensions continue to hit global markets, affecting the prices of key Australian commodities such as iron ore and wool

Two of the RBA's greatest irritants — unemployment and wage growth — are updated this week; and if forecasts are correct, they are likely to exhibit a turn for the worse.

The consensus view of market economists is the unemployment rate will tick up again, this time to 5.3 per cent.

February's 4.9 per cent seems a long time ago.

The RBA's ideal of full employment at 4.5 per cent is not even on the radar — 5 per cent is as good as Dr Lowe's economic modellers can see, and that's still years away at the extremity of their forecast vision.

As for wages, the best anyone can come up with is that wage inflation over the first quarter, as measured by the Wage Price Index (WPI), won't be much worse than any of the previous quarters' very soft results.

The market has pencilled in another quarter 0.5 per cent wage growth; barely enough to hold the WPI at 2.3 per cent over the year.

Data collated by the Attorney-General's department points to completed enterprise bargaining agreements delivering even lower outcomes in the first quarter.

Given the standard EBA runs three years, and the trend of the past six months — particularly in the construction and public sectors — has been for a steep erosion in outcomes, weak wage growth looks locked in for some time.

RBA winds back forecasts

Westpac's Bill Evans says there is little to suggest there has been a meaningful acceleration in wages.

"Wage inflation has lifted off its record low of 1.9 per cent a year in June 2017, but running at 2.3 per cent in March 2019 it can hardly be described as a breakneck pace," Mr Evans said.

"We expect wage inflation to drift higher from here — our forecasts have it peaking around 2.75 per cent a year in late 2020 — but given how well contained wage inflation is across the nation, and between sectors, even this modest increase looks optimistic, with the risks meaningfully skewed to the downside."

The low wage outcomes are a big factor in the RBA continually undershooting its inflation target. It also puts a brake on household consumption and ultimately the entire economy.

While the RBA's cuts to its GDP growth and unemployment forecasts last week gained most attention, household consumption growth was also pruned back from 2 per cent this year to just 1.5 per cent — not exactly great news for struggling retailers.

'Wait and see'

With everything being wound back, it was fairly obvious the RBA would also wave the white flag on a somewhat heroic punt on wages growth.

"The motivation behind this decision, which must be very disappointing for the RBA Governor given his strong focus on lifting wages growth, is firstly due to the RBA's own liaison program which shows that the majority of firms anticipate little change in wages growth over the next year," Mr Evans said.

Dr Lowe's basic proposition to the Parliament's economics committee on Friday was the economy would "strengthen gradually after a run of disappointing [GDP] numbers".

There appears to be little sense of urgency about the future of either the domestic or global economies, with the RBA happy to sit back and watch the magic of its June and July rate cuts work.

"It [the RBA board] judged that after having moved twice in quick succession it was appropriate to wait and assess developments both internationally and domestically," Dr Lowe told the MPs.

However, the RBA's downgraded internal forecasts paint a slightly different picture — slackness in the labour market, stagnant wages growth and chronically sub-target inflation.

Another disappointing batch of unemployment and wages data this week is likely to snap the RBA out of "wait and assess" mode and back to the old cutting board, sooner rather than later.

Market slide of trade jitters

Wall Street traders thought it would be wise to offload risk ahead of the weekend as another batch of trade-related comments from the White House left them somewhat confused and on edge.

Central to the new anxieties is the fate of the next round of US-China trade talks scheduled for next month.

"We're talking with China. We're not ready to make a deal — but we'll see what happens," US President Donald Trump told reporters on his way to a fundraiser.

"China wants to do something, but I'm not ready to do anything yet. Twenty-five years of abuse — I'm not ready so fast, so we'll see how that works out," Mr Trump said.

The key US indices recovered a bit after a sharp initial Friday sell-off. After a volatile week, they ended up roughly where they started.

The ASX had a much rougher time, down almost 3 per cent — its worst week since November last year. Futures trading point to a less than robust start on Monday.

Markets on Friday's close: ASX SPI 200 futures -0.1pc at 6,566; ASX 200 (Friday's close) +0.3pc at 6,584

ASX SPI 200 futures -0.1pc at 6,566; ASX 200 (Friday's close) +0.3pc at 6,584 AUD: 67.9 US cents; 60.6 euro cents; 56.4 British pence; 71.7 Japanese yen; $NZ1.05

AUD: 67.9 US cents; 60.6 euro cents; 56.4 British pence; 71.7 Japanese yen; $NZ1.05 US: Dow Jones -0.3pc at 26,287; S&P500 -0.7pc at 2,918; NASDAQ -1pc at 7,959

US: Dow Jones -0.3pc at 26,287; S&P500 -0.7pc at 2,918; NASDAQ -1pc at 7,959 Europe: FTSE -0.4pc at 7,254; DAX -1.3pc at 11,694; EuroStoxx50 -1.2pc at 3,334

Europe: FTSE -0.4pc at 7,254; DAX -1.3pc at 11,694; EuroStoxx50 -1.2pc at 3,334 Commodities: Brent oil +2pc at $US58.53/barrel; Gold -0.2pc at $US1,497/ounce; Iron ore $US93.50/tonne

Commodities hammered

The escalating US-China tensions' impact on equity markets has been modest compared to the pain being felt in trade-sensitive commodities.

Over the week, oil's global benchmark, Brent Crude, fell more than 5 per cent. It's down about 20 per cent from its April peak.

The slide may well become more pronounced as the International Energy Agency (IEA) again cuts its forecast for global oil demand.

"The prospects for a political agreement between China and the United States on trade have worsened. This could lead to reduced trade activity and less oil demand growth," the IEA said it monthly oil market report.

Iron ore fared worse, down almost 15 per cent for the week. Iron ore futures in the Dalian market have now fallen for seven consecutive days.

Then there's wool, another staple of Australia's export effort. It dropped more than 4 per cent last week to be down about 16 per cent from this time last year.

"Blood everywhere and none of it due to wool factors," was the blunt summary from industry veteran Peter Morgan.

Dr Morgan, who is the executive director of Australian Council of Wool Exporters and Processors, said global tensions were weighing heavily on the market.

"All that good work was overshadowed by the increasing global economic uncertainty associated with the trade disputes between the US and China, in particular the US and India, rising tension between with Iran, the downward pressures on interest rates and the unknowns arising from Brexit," Dr Morgan said.

"As always in such circumstances, commodity prices come under pressure, except for gold, which moves up."

Wool prices have tumbled throughout the year as global trade tensions have increased. ( Source: Australian Wool Industries Secretariat, Dr Peter Morgan )

Profits a worry too

Interestingly, the big French investment bank Societe Generale (SG) says the US is staring down the barrel of a recession next year.

However, the trade war is more a catalyst in its analysis. The key factor is shrinking corporate margins and profits.

"If the US enters a recession in the next year, history is very likely to view it as a trade-war recession," SG's US economist Stephen Gallagher, said.

"Our analysis is that the weak profit structure in the US has made companies much more sensitive to any shock, higher costs and uncertainty.

"Trade tensions and tariffs are more damaging when margins are thin and companies are unable to absorb rising costs."

So will the Federal Reserve's easy monetary policy come to the rescue?

"Monetary policy has become more accommodative, and Fed officials are expected to cut rates further. Whether or not the policy response is sufficient to forestall a recession remains to be seen," Mr Gallagher said.

Australia

Date Event Comment Monday 12/8/2019 Companies reporting Ansell, Aurizon, Bendigo & Adelaide Bank, GPT, JB Hi Fi Tuesday 13/8/2019 Business survey Jul: Conditions picked up a bit but remain well below trend and confidence reversed an immediate post-election bounce Companies reporting Challenger, Magellan Wednesday 14/8/2019 Consumer confidence Aug: Confidence has fallen in the previous two readings, despite or perhaps because of, the RBA's cuts Wage price index Q2: Still soft, forecast to grow 2.2pc YOY (down from 2.3pc) as stronger private sector outcomes are offset by slower growth in the public sector RBA speech Deputy governor Guy Debelle speaks on "Risks to the Outlook" Companies reporting Computershare, CSL, Dexus, H,T&E (formerly APN), Tabcorp, Vocus, NAB (Q3 update) Thursday 15/8/2019 Employment/unemployment Jul: Market forecasts 20K new jobs & unemployment steady at 5.2pc Average weekly earnings Biannual measure of wage growth, broader and more volatile than WPI, as measures structural changes in the jobs market and things like fringe benefits Tourism data Jun: Arrivals are picking up Companies reporting ASX, Blackmores, Evolution Mining, Invocare, QBE, Super Retail, Sydney Airport, Telstra, Treasury Wine Estates, Whitehaven, Woodside Friday 16/8/2019 Companies reporting Cochlear, Domain, Newcrest, Star Entertainment

Overseas