2am, USD, CB Consumer Confidence
1:30pm, AUD, CPI q/q
1:30pm, AUD, Trimmed Mean CPI q/q
12:30am, CAD, CPI m/m
6am, USD, FOMC Statement
6:30am, USD, FOMC Press Conference Read more
Movements in currency markets this week have been largely dominated by broad swings in risk sentiment. There has been a strong correlation between swings in US equity markets and moments in the NZD and AUD, and we expect that trend to continue in the near term. Weakness in US equities in the first half of the week saw the NZD and AUD trade down to recent cycle lows against the USD, but a recovery in stock markets in the past couple of days has caused both currencies to recover somewhat. The improving risk sentiment has also helped commodities such as crude oil which managed to gain 4% on Wednesday night, climbing back above $70.00 a barrel. Read more
• Worldwide coronavirus cases surpass 191.670 million with over 4.112 million official
• Markets are now pricing in a 90% chance of a RBNZ rate hike in August this year, this was May 2022 until recently
• 55 cases linked to athletes in the Olympic village have tested positive for coronavirus since 1 July
• Canada will reopen its borders with the US on August 9th.
• Japanese Inflation jumped to 0.2% from -0.1% expected to June 2021 y/y
• Australian lockdowns in Sydney and the state of Victoria are predicted to cost the economy 10B and shrink the countries GDP by as much as 1.5% in the third quarter figures
• Crude Oil settles at 66.80 per barrel down -7.5% on the day after demand drops Read more
1:30PM, AUD, Monetary Policy Meeting Minutes
All Day, JPY, Bank Holiday
11:45PM, EUR, Monetary Policy Statement
12:30AM, EUR, ECB Press Conference
All Day, JPY, Bank Holiday
7:30PM, EUR, German Flash Manufacturing PMI
7:30PM, EUR, German Flash Services PMI
Jerome Powell, the Federal Reserve Chairman, addressed congress midweek holding back expectations against tightening policy by saying “while reaching the standard of substantial progress is still a way off, participants expect that progress will continue”. As labour supply increases as they roll off unemployment benefits – “it’s likely that we will still be short of maximum employment,” – “this is why we don’t see that it’s time to raise interest rates now”. He went on to say the Federal Reserve won’t hesitate to raise interest rates to keep inflation under wraps but he repeatedly said he expects pressure on price rises to ease towards the end of the year. He is not in a hurry it seems to start paring back their 120B monthly treasury securities purchases.
The US CPI figure has jumped 0.9% m/m to June after recording 0.6% in May and 0.8% in April. Annually this number has accelerated to 5.4% in June 2021 from 5.0% in May, a fresh high since August 2008. The number beat expectations at 4.9% y/y with the biggest rises in gas, used cars and trucks as well as utility services making the largest impact. This raises the question – is the Fed still operating in a “transitory” moment in time or is this something a little more enduring? We view the chances that Powell could be wrong in his inflation forecasts very high.
China’s economy grew by 7.9% y/y to end the second quarter of 2021 close to the predicted 8.0% figure we were expecting but well down on the 18.3% recorded in the first quarter. However, in line with previous quarters recorded going back to late 2020 this falls in line with an improving economy rebounding well from the coronavirus outbreak.
- Worldwide coronavirus cases surpass 189.696 million with over 4.082 million official deaths.
- Markets are now pricing in a 90% chance of a RBNZ rate hike in August this year, this was May 2022 until recently.
- Tokyo has reported over 1,300 new coronavirus cases in the past day putting emergency services on edge with 3nthe number of hospital cases surging.
- NZ inflation prints at 1.3% q/q and 3.3% y/y.
12:30am, USD, CPI m/m
12:30am, USD, Core CPI m/m
2pm, NZD, RBNZ Rate Statement
All Day, EUR, French Bank Holiday Read more
The Reserve Bank of Australia left their benchmark Cash Rate unchanged Tuesday at 0.10% with expectations they won’t be hiking until well into 2024. This is a small change from the line “at least 2024” The Central Bank confirmed they will start to taper their QE bond buying program from September this year to 4B per month from 5B currently, with predictions that the purchase pace will be slowed further from November 2021 much quicker than expected. This outcome was clearly hawkish, sending the Australian Dollar higher across the board post release. We think it’s highly likely the central bank could hike interest rates prior to 2024 at the current rate of economic expansion.
The Federal Reserve Bank minutes released yesterday, confirmed they will ramp up considerations of decreasing their 120B per month treasury purchases in the July 28th FOMC meeting. In the latest meeting 13 of the 18 Fed members projected they would raise rates from zero by 0.5% by the end of 2023. We expect inflation to rise further from 4.1% as the economy will struggle to meet supply and services demands. Interestingly the Fed made calls in 2020 that 3 factors would need to be met for them to consider raising rates, the first was inflation reaching 2%, second inflation to run moderately above 2% and the third, the economy needed to be at around maximum employment. It’s unclear what “maximum” employment is exactly but given its a healthy target nonetheless, this itself will bring about further inflationary pressures. So with all of the above 3 points arguably satisfied, why is the Fed still holding the view that this period is “transitory”? A debacle perhaps. Letting inflation run higher is insanely risky which could spark souring prices that could ultimately derail the recovering economy. Read more
The US economy added 850,000 jobs to the labor market excluding the farming industry Friday when the US Non-Farm Payroll figures for June were released. Expectations were for 725,000, the release showing solid signs of demand for workers. The Unemployment Rate rose to 5.9% from 5.8% in May after predictions were for a print of 5.6%. With May and April job numbers down, job growth has lagged behind broader economic growth with just 852,000 jobs being added over the past two months. Rising vaccination rates, easing government restrictions have meant workers are slowly coming back to work, also helping is that the fear of the pandemic seems to be easing. The US Dollar fell sharply on the headline news as the finer details came through on the wires, the US Dollar Index falling half a percent and all USD Dollar crosses were sharply pushed higher. The report was overall dovish, missing market expectations which ultimately means the US Federal Reserve’s tapering plans won’t be adjusted forward any time soon. Read more
All Day, All, OPEC-JMMC Meetings
All Day, USD, Bank Holiday
4:30pm, AUD, RBA Rate Statement
6pm, AUD, RBA Gov Lowe Speaks
2am, USD, ISM Services PMI
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As the second quarter came to an end the US Dollar extended recent gains and bond yield prices dropped lower. Equity Indices still remain at close to record levels and as well as many commodities, gold is back at 1,770 per ounce looking like it wants to make up early June losses.
Inflation is a hot topic of conversation at the moment around the world as central banks grapple with trying to decide how to respond to rising CPI and manage inflation targets, not just in Western economies but in countries which don’t usually make mainstream headlines.
Economies around the world have made extraordinary shifts to monetary policy. This time last year we were talking about how to build economic growth and return global economies to full employment, now the challenge is about how to stop inflation from running to crazy high levels in the current chaos. The notion that inflation is nothing to worry about and is only “transitory” is a dangerous perception. Once inflation becomes a “deep-seated” real problem, populations become poorer, unemployment rises and creates division in society, before too long everyone is blaming someone else for the ongoing carnage unfolding. Read more