17 Aug

The Reserve Bank of New Zealand continues to raise rates aggressively. Inflation in Canada has peaked

August 17, 2022

By JustForex

The US Industrial Production for July reports a 0.6% month-over-month increase compared to the consensus forecast of 0.3%. This report provides more evidence that Q3 GDP should be good, but the outlook for Q4 looks tougher. The NY Empire manufacturing survey was weak on Monday and pointed to low year-end orders and activity. There are also growing problems with the real estate sector. The US housing starts fell by 9.6% m/m in July to an annualized rate of 1.446k compared to the consensus forecast of 1.527k. This is the weakest level since February 2021.

The US stock indices traded yesterday without a single trend. At Monday’s close, the Dow Jones Index (US30) added 0.71%, while the S&P 500 Index (US500) increased by 0.19%. The NASDAQ Technology Index (US100) lost 0.19%.

Inflation in Canada is down slightly but remains too high. Canada’s Consumer Price Index for July was 7.6% y/y (forecast 7.6%), down from June’s 8.1% y/y. The Core Consumer Price Index was 6.1% y/y versus expectations of 6.1% and 6.2% in June. The good news is that inflation appears to have peaked. The bad news is that inflation will likely remain too high for a while. In his speech, the Governor of the Bank of Canada pointed out that to combat inflation, the Bank needs to bring overall economic demand more in balance with supply. The Bank of Canada’s current goal is to cool the economy enough to bring inflation back to its target of 2%. Therefore, the Bank of Canada will seek to slow demand growth. This is what is called a soft landing. By drastically raising interest rates now, the Bank of Canada is trying to avoid the need for even higher interest rates and a sharper slowdown later.

Equity markets in Europe mostly rose yesterday. Germany’s DAX (DE30) gained 0.68% on Tuesday, France’s CAC 40 (FR40) gained 0.34%, Spain’s IBEX 35 (ES35) added 1.01%, Britain’s FTSE 100 (UK100) closed up by 0.36%.

On Tuesday, Germany secured a commitment from major gas importers to ensure that two floating liquefied natural gas (LNG) terminals are fully supplied this winter to reduce dependence on Russian fuel. Analysts expect a worst-case scenario for Europe this winter, which is why the US dollar remains so strong.

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The latest UK labor market data for April-June 2022 showed a slight drop in the employment rate, and a slight increase in the unemployment rate, with the economic inactivity rate unchanged.

Oil hit a 6-month low as a potential deal with Iran scares oil investors. West Texas Intermediate, the US benchmark, was down by $2.88, or 3.2%. Brent, a London-listed global benchmark, decreased by $2.76, or 2.9%.

Asian markets traded flat yesterday. Japan’s Nikkei 225 (JP225) decreased by 0.01%, Hong Kong’s Hang Seng (HK50) lost 1.05%, and Australia’s S&P/ASX 200 (AU200) was up by 0.58%.

Japan’s trade deficit hit a record high in July as the impact of soaring commodity prices and a 24-year low in the yen exacerbated the obstacles to the country’s economic recovery. Because of its dependence on energy and food from abroad, Japan has faced sharply higher import costs amid the war in Ukraine and supply problems related to quarantine in China. The Finance Ministry said Wednesday that the trade deficit widened to 2.13 trillion yen ($15.9 billion). The trade balance has been in negative territory since 2015.

Minutes from the Reserve Bank of Australia’s (RBA) August policy meeting on Tuesday showed that Australia’s Central Bank still sees the need to raise interest rates further to prevent high inflation from locking in expectations.

The Reserve Bank of New Zealand raised its key interest rate by another half a percent to 3% and expected it to rise to at least 4%. New Zealand’s rate hike in the last ten months is the most aggressive tightening cycle in 30 years. Updated RBNZ forecasts on Wednesday showed that OCR will peak at 4.1% in the second quarter of 2023, compared with a May estimate of 3.95% in the third quarter of that year. Goldman Sachs Group Inc. sees a 30-35% chance of a recession in New Zealand over the next 12 months. In their view, the RBNZ is putting the brakes on too much, squeezing the housing market, and reducing consumer spending.

S&P 500 (F) (US500) 4,305.20 +8.06 (+0.19%)

Dow Jones (US30) 34,152.01 +239.57 (+0.71%)

DAX (DE40) 13,910.12 +93.51 (+0.68%)

FTSE 100 (UK100) 7,536.06 +26.91 (+0.36%)

USD Index 106.47 -0.08 (-0.07%)

Important events for today:
  • – Australia Wage Price Index (q/q) at 04:30 (GMT+3);
  • – New Zealand RBNZ Interest Rate Decision (m/m) at 05:00 (GMT+3);
  • – New Zealand RBNZ Monetary Policy Statement (m/m) at 05:00 (GMT+3);
  • – New Zealand RBNZ Press Conference at 06:00 (GMT+3);
  • – UK Consumer Price Index (m/m) at 09:00 (GMT+3);
  • – Eurozone GDP (q/q) at 12:00 (GMT+3);
  • – US Retail Sales (m/m) at 15:30 (GMT+3);
  • – US FOMC Member Brainard Speaks at 16:30 (GMT+3);
  • – US Crude Oil Reserves (w/w) at 17:30 (GMT+3);
  • – US FOMC Meeting Minutes (m/m) at 21:00 (GMT+3);
  • – US FOMC Member Bowman Speaks at 21:20 (GMT+3).

By JustForex

 

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.


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