RBNZ kept interest rates at the same level. Inflationary pressures are easing in Australia

By JustMarkets

At Tuesday’s close, the Dow Jones Index (US30) increased by 0.24%, while the S&P 500 Index (US500) was up by 0.10%. The NASDAQ Technology Index (US100) closed positively by 0.29% on Tuesday. Meanwhile, the Dow Jones Industrials (US30) index rose to a 3-month-high. Stocks rose on Tuesday thanks to dovish comments from Fed spokesman Waller, which lowered the 10-year T-note yield and reinforced expectations that the Fed has stopped raising interest rates. At the same time, the likelihood of a rate cut from the US Fed starting in May-June 2024 is increasing. Fed funds futures suggest about 85 bps of cumulative interest rate cuts by December 2024.

Economic news from the US on Tuesday was mixed for the dollar. On the bearish side, the Richmond Fed’s November manufacturing survey fell from 8 to 5. In addition, the Conference Board’s US Consumer Confidence Index for November rose by 2.9 to 102.0, stronger than expectations of 101.0. Today, the US will release its GDP report for the quarter. The data is expected to be revised upward, which could temporarily support the dollar and put pressure on stock indices.

Warren Buffett confidant Charlie Munger died Tuesday at the age of 99. Munger would have turned 100 on January 1. Despite a well-developed succession plan at the conglomerate, analysts believe such a man will be impossible to replace.

Equity markets in Europe traded yesterday without any dynamics. Germany’s DAX (DE40) rose by 0.16%, France’s CAC 40 (FR40) fell by 0.21% on Tuesday, Spain’s IBEX 35 (ES35) jumped by 0.70%, and the UK’s FTSE 100 (UK100) closed negative by 0.07%.

Germany will release inflation data today. Consumer prices are expected to fall from 3.8% to 3.5% y/y. Lower inflationary pressures may have a negative impact on the euro as it will weaken the ECB’s hawkish rhetoric on inflation.

The representative of the ECB Governing Council and President of the Bundesbank Nagel said yesterday that it is premature for the ECB to discuss interest rate cuts. This complements ECB chief Lagarde’s words on Friday that the ECB has done enough, and now is the time to keep rates at current levels and analyze economic data.

Oil rose on Wednesday amid investor caution ahead of a crucial OPEC+ meeting to decide production policy in the coming months, while supply disruptions caused by a storm in the Black Sea supported prices. OPEC+ will hold an online meeting of ministers on Thursday to discuss production targets for 2024 after the meeting was postponed from November 26. According to some OPEC+ sources, the talks will be difficult, and it is possible that countries may not be able to agree on further production cuts. This would be a negative signal for oil.

Asian markets were mostly down yesterday. Japan’s Nikkei 225 (JP225) decreased by 0.12% for the day, China’s FTSE China A50 (CHA50) was down by 0.96%, Hong Kong’s Hang Seng (HK50) fell by 0.98%, and Australia’s ASX 200 (AU200) was up by 0.29%.

The Central Bank of New Zealand (RBNZ) left the money rate unchanged at 5.5% on Wednesday but noted that inflation remains too high and that further policy tightening may be needed if price pressures do not ease. The “hawkish” tone of the statement surprised many in the market, leading to a rise in the New Zealand dollar and bond yields. The new center-right government said Wednesday it will begin the legislative process to return the central bank to a single mandate for inflation targeting. The change would remove the requirement for the RBNZ to consider employment levels when setting the money rate and focus solely on inflation.

Australian inflation fell more than expected in October as commodity prices fell and core inflation also declined, confirming the central bank’s decision to leave interest rates unchanged next week. Data from the Australian Bureau of Statistics on Wednesday showed the inflation rate fell to 4.9% (5.2% expected) from 5.6% annually. However, financial markets still believe the RBA will maintain its hawkish rhetoric in December. The probability of a further rate hike to 4.60% in the first half of next year is around 50%.

Bank of Japan board spokesman Adachi said it was premature to discuss an exit from negative interest rates, suggesting it could take all next year to determine whether wages will rise enough to abandon ultra-loose monetary policy. The remarks by Adachi, who is considered one of the board’s dovish policymakers, came amid growing market expectations on Wednesday that the BoJ could take short-term interest rates out of negative territory as early as January.

Main market quotes:

S&P 500 (US500) 4,554.89 +4.46 (+0.098%)

Dow Jones (US30) 35,416.98 +83.51 (+0.24%)

DAX (DE40) 15,992.67 +26.30 (+0.16%)

FTSE 100 (UK100) 7,455.24 −5.46 (−0.073%)

USD index 102.74 −0.46 (−0.45%)

• – Australia Consumer Price Index (m/m) at 02:30 (GMT+2);
• – RBNZ Interest Rate Decision at 03:00 (GMT+2);
• – RBNZ Monetary Policy Statement at 03:00 (GMT+2);
• – RBNZ Press Conference at 04:00 (GMT+2);
• – German Consumer Price Index (m/m) at 15:00 (GMT+2);
• – US GDP (q/q) at 15:30 (GMT+2);
• – US Crude Oil Reserves (w/w) at 17:30 (GMT+2);
• – US FOMC Member Mester Speaks at 20:45 (GMT+2).

By JustMarkets

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.