Global rate cuts now more certain

Economy Watch

Kia ora,

Welcome to Thursday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.

I'm David Chaston and this is the international edition from Interest.co.nz.

Today we lead with news inflation data in both the US and UK keeps rate cuts in play.

The widely-anticipated July American inflation rate came in largely as expected, dipping slightly to 2.9% from 3% in June. That is its lowest level since March 2021. The "core" rate dipped to 3.2%. Rents were up +5.1% in the year but petrol was down -2.2%. Financial markets saw little to worry about in this data and seem to feel comfortable that it won't deter the Fed from the rate cuts in the rest of 2024 they have priced in.

More falls may be due in August; American petrol prices are now down more than -10% from a year ago in a respected national survey.

Meanwhile US mortgage applications leaped more than +16% last week from the prior week, the biggest one-week rise since an outlier in early 2003, and before that, pre-pandemic. Triggering this was a sharp pullback in mortgage costs from the prior week as the rate on benchmark contracts fell nearly -30 bps since the start of the month, now 6.54%, and tracking the sharp decline in yields of long-dated Treasury notes and bonds due to the increasingly dovish expectations for the Fed.

There seems little reason for the US Fed to delay the market rate cuts priced in by financial markets, although those markets do seem to be doing that for them. They next meet on September 19 (NZT).

I know we have pointed this out before, but there are still two weeks to go in the US summer holiday season, one that end with their Labor Day on September 3 (NZT). It is after that that financial markets 'normalise'. In the meantime, central bankers will be getting ready for their annual retreat to Jackson Hole, WY, August 23-25 (NZT), which has become a bit of an economic obsession.

It is not only the holiday season in the US, it is also a national holiday in India today, their Independence Day.

In China, their leaders are at their summer retreat at the seaside resort enclave at Beidaihe.

But in Japan, Prime Minister Fumio Kishida has resigned after nearly three years in the role.

In Europe, there was CPI inflation data out for England. That remained low at 2.2% in July, but up from 2% in both May and June. They got higher rents (+8.6%) and their core inflation is running at 3.3% and kept down by lower petrol costs.

And we should note that both steel rebar and soybean prices are still moving sharply lower, both in response to tough conditions in China. They are not the only falls, but are the commodities leading the retreat.

Locally, the CBA profit result release heralds the start of the local earnings season reporting, one that is sure to colour where both the ASX and NZX goes from here.

The UST 10yr yield is now at just on 3.83% and down -3 bps from yesterday.

The price of gold will start today down -US$24 from yesterday at US$2441/oz.

Oil prices are -US$1.50 softer at just over US$76/bbl in the US while the international Brent price is now just on US$79.50/bbl.

The Kiwi dollar starts today down -¾c from this time yesterday at just on 60 USc following the OCR cut. But to be fair it is only back to where it was last week. Against the Aussie we are down -70 bps from yesterday at 90.9 AUc. Against the euro we are down -80 bps at 54.5 euro cents. That all means our TWI-5 starts today at 68.5 and down -70 bps.

The bitcoin price starts today at US$59,138 and down -3.7% from this time yesterday. Volatility over the past 24 hours has been moderate at just under +/- 2.4%.

You can find links to the articles mentioned today in our show notes.

You can get more news affecting the economy in New Zealand from interest.co.nz.

Kia ora. I'm David Chaston. And we will do this again tomorrow.