USD: Fed Pauses Rate Hike, Awaits Data and Market Reactions; ZAR: Saffa economy capped by ongoing electricity crisis and political damage to net trade; EUR: Eurozone's Largest Economy Shows Signs of Easing Inflation; GBP: Bank of England Surprises with 50 Basis Point Rate Hike; JPY: Japanese May core consumer inflation fastest ever in 42 years, breaking the wrong record; AUS: Australia's private sector expanded for the third consecutive month, raising certain public sector questions
US: FED PAUSES RATE HIKES, AWAITS DATA AND MARKET REACTIONS
In the aftermath of the rate hike pause, Federal Reserve Chairman Jerome Powell has affirmed the anticipation of forthcoming interest rate increases to achieve the long-term inflation target of 2%.
Powell has stated, "Almost all participants of the Federal Open Market Committee (FOMC) expect that it would be suitable to gradually raise interest rates to a somewhat higher level by the conclusion of this year."
Nonetheless, Powell has also acknowledged the possibility of dampening economic growth in order to suppress inflation, which may result in a period of below-trend expansion.
Furthermore, the future determination of interest rate adjustments will depend on incoming data and market responses rather than adhering to a predetermined trajectory.
In a not-so-unrelated development, a total of over 264,000 new jobless claims have been filed on a seasonally adjusted basis, suggesting an early indication of a potential weakening in the labor market due to the Federal Reserve's assertive credit tightening measures.
EUR: EUROZONE'S LARGEST ECONOMY SHOWS SIGNS OF EASING INFLATION
Germany, the leading economy within the Eurozone, is witnessing positive developments in its inflation landscape. Producer prices in May recorded a minimal 1.0% increase, representing the lowest surge observed since January 2021.
This decline primarily stems from notable drops in energy prices (-3.3%), electricity (-10.2%), intermediate goods (-2.3%), and metals (10.9%). However, when excluding the energy sector, Germany's producer price index (PPI) exhibited a year-on-year growth of 3.2% in May.
Nevertheless, the European Central Bank (ECB) remains cautious, as consumer durables, non-durables, capital goods, and food prices have yet to display signs of deceleration. As a reaction to this development, the German 2-year bond yield experienced a decline of 1.5 basis points, settling at 3.19%.
ZAR: CAPPED SAFFA ECONOMIC GROWTH & NET TRADE CONCERNS
In the first quarter of 2023 (1Q23), the economy experienced a noteworthy expansion of 0.4% quarter-on-quarter (q/q). This performance surpassed our initial projections, which had anticipated a mild technical recession, and also outperformed the consensus estimate of a 0.3% growth rate.
Notably, this growth rebound was evident in eight out of ten economic sectors, indicating a broad-based recovery. However, it is important to acknowledge that this positive development, although encouraging, was relatively subdued in comparison to the 1.1% contraction witnessed in the preceding quarter (4Q22).
The lingering challenges, including the persisting electricity crisis and logistical hurdles, continue to pose obstacles to achieving a faster pace of economic growth.
GBP: BoE SURPRISES ALL WITH 50 BASIS POINT HIKE
In response to the persistent challenge of an 8.7% inflation rate, the Bank of England has opted for an unexpected and sizeable 0.5% increase in interest rates.
This decision elevates the bank's base rate to 5%, reaching levels not observed since 2008. It marks the most substantial rate hike witnessed since February and reflects the institution's commitment to addressing inflationary pressures.
Governor Andrew Bailey of the Bank of England has expressed his determination to address the issue of inflation. He stated that the Monetary Policy Committee (MPC) will take the necessary measures to sustainably return inflation to the 2% target in the medium term.
However, this commitment raises concerns, as the UK's economy has only marginally recovered to pre-pandemic levels, with forecasts indicating minimal growth of around 0.25%.
JPY: STRONG JAPANESE INFLATION, BoJ STRATEGISES
Hold on tight because Japan's core consumer inflation has just thrown everyone for a loop! In May, the inflation rate excluding fuel costs surged by a whopping 3.2% compared to the previous year, surpassing expectations and marking the highest annual growth in 42 years.
It's worth noting that although this figure is slightly lower than April's 3.4%, it still outperformed the projected rate of 3.1%. These alarming numbers have sparked discussions about the need for the Bank of Japan (BoJ) to take immediate action and address the unsettling bond market distortions.
AUS: BOOMING AUSSIE PRIVATE SECTOR TELLS TALES
Australia's private sector has continued its impressive expansion streak, maintaining a rating of 50.5 at the end of Q2 2023. This sustained growth trend, now spanning three consecutive months above the 50.0 mark, is indicative of the sector's robust performance.
Meanwhile, the Australian Manufacturing PMI records a slight improvement from May's 48.4 to 48.6, though it remains in the contractionary territory.
Despite this, employment levels in the manufacturing sector are on the rise as companies bolster their workforce in preparation for upcoming operations. As we close the first half of 2023, overall business sentiment in Australia remains positive. However, market watchers are expressing concerns about interest rates and the economy for the second half of the year.
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