US: US Fed Reserve catapults interest rates to 22-Year peak; EUR: Worsening economic data on fundamentals cause recession worries; ZAR: Momentary respite with slower headline inflation as CPI prices come recede and somewhat halt ; GBP: Sluggish growth hits UK firms as rate hikes take toll; JPY: Ever-increasing prices pressurising Bank of Japan to take further policy action; AUS: Decent inflation-combating progress results on a year-on-year basis
USD: FED CATAPULTS INTEREST RATES to 22-YEAR PEAK
The US Federal Reserve's decision to raise interest rates to a 22-year peak carries a clear message to the market: doubt not its determination to curb stubbornly high inflation.
This quarter-point elevation places rates between 5.25% and 5.5%. Despite this, the US economy has displayed resilience through 11 prior rate hikes, and unemployment remains near historic lows. Consequently, the central bank committee emphasizes continuous vigilance, promising careful assessment of new economic data prior to their next move.
Regardless, analysts caution about upcoming months due to clouded uncertainties. Nonetheless, at face value, the US economy appears on the right course.
EUR: WORSENING FUNDAMENTALS CAUSE WORRY
Initiating the third quarter, two major players in the Eurozone, Germany and France, faced declines in their private sectors, coinciding with sustained manufacturing weaknesses.
Specifically, Germany recorded a reading of 48.3 on the S&P Global Flash PMI, marking the lowest point of the year and piercing the growth-indicative threshold of 50. This sharp decrease raises significant concerns, signifying the swiftest drop in factory output since the outbreak of COVID-19, consequently instilling apprehension among the bloc's members regarding a potential recession resurgence.
Adding to the complexities, the European Central Bank (ECB) is grappling with persistent inflation, a situation that might necessitate a 25 basis point rate hike during the upcoming meeting. This move, if implemented, will undoubtedly exacerbate the already struggling economy.
ZAR: HEADLINE INFLATION MOMENTARY RESPITE
After a continuous stretch of more than two years at over 5%, consumer inflation receded to 4.7% in July.
While this shift signifies a deceleration in the pace of price escalation from the previous year, it's important to note that monthly pressures persist, causing an expansion of inflation across various commodities compared to the prior year.
In the month of July, the monthly inflation rate settled at 0.9%, primarily attributed to a substantial 9.6% surge in utility costs, contributing 0.7ppt to the overall inflation rate. Moreover, it's crucial to anticipate another upswing in inflation in September, as the ongoing under-recovery in petrol (over R1.50) and diesel (over R2.70) is poised to become a significant data point.
Additionally, the absence of the positive base effects that had previously driven inflation down during the past couple of months adds to the expectation of an impending inflationary uptick.
GBP: RATE HIKES SETTLE INTO UK FIRMS
In July, the British private sector experienced its slowest growth in half a year. This deceleration comes on the back of waning orders, attributed to the concurrent rise in interest rates and unyielding inflation pressures.
The initial reading of 50.7 from S&P Global PMI points to growth, albeit a drop from June's 52.8 – marking the most substantial month-on-month decline in 11 months and representing the weakest performance since January. Economists are echoing concerns, stating that forward-looking indicators all signal a further weakening of growth in the impending months.
Consequently, financial markets are factoring in a 25 basis point rate hike, pushing it to 5.25%.
JPY: CPI UNDYING, PRESSURISING BoJ
The latest data from Japan's Statistics Bureau reveals that July's CPI surpassed economists' predictions.
Notably, the core CPI, excluding energy, saw an unexpected 4% acceleration, marking the swiftest pace in over four decades. However, when fresh food is excluded, the CPI settles at 3%, showing a decrease from the preceding month's 3.2%, attributed to declining energy costs.
Addressing this situation, BoJ Governor Ueda, following a comprehensive two-day meeting, introduced an adjustment to the bond yield control curve policy. This adjustment entails permitting the 10-year JGB yield to ascend to 1%.
AUS: DECENT YEAR/YEAR CPI PROGRESS
The consumer price index (CPI) for April to June witnessed a delightful 6% increase compared to the previous year, falling short of economists' 6.2% prediction and marking a decline from the 7% recorded in the preceding quarter.
However, the RBA faces a dilemma as strong job additions by employers contrast with their goal of achieving 2–3% inflation by mid-2025. To meet this target, the RBA plans to progressively raise the cash rate. This dynamic led investors and short-term speculators to abandon the Australian dollar in favor of undervalued stocks.
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