Traders face a busy week, economists say
It was an eventful week in the financial markets, marked by political turbulence in Europe and pivotal economic data releases, according to Kiwibank economists.
Kiwibank’s Jarrod Kerr, Mary Jo Vergara, and Sabrina Delgado (pictured above, from left to right), said the main focus was on the US, where inflation data came in softer than expected, prompting a big bond rally that was later pared back after the US Federal Reserve took a less dovish stance than anticipated.
US economic indicators and Fed’s response
Inflation in the US has decreased to 3.3%, below the consensus of 3.4%. Core inflation, which excludes volatile items like food and energy, rose by just 0.2% over May—its slowest pace in more than three years.
Despite these figures, the Fed has maintained rate settings unchanged for the seventh consecutive meeting, looking for more signs of disinflation before making a move.
“March quarter inflation was up and the housing market is again booming, but economic growth has stalled,” the Kiwibank economists said. “The RBA will wait on at least the June quarter Consumer Price Index number before moving on the cash rate.”
Global central bank outlooks
This week, attention turns to other central banks with the Reserve Bank (RBA) and the Bank of England (BoE) both set to make policy announcements. RBA is expected to maintain a hawkish stance due to recent inflation reacceleration, whereas the BoE might signal readiness for rate cuts later in the year based on upcoming inflation data.
New Zealand’s economic performance
The focus locally will be on New Zealand’s first-quarter economic performance.
“We expect the economy contracted a further 0.1%,” the Kiwibank economists said. “We’re picking up (not literally) from where we left off last year, continuing in a recessionary environment with potentially five out of the last six quarters recording a decline in output.”
This could confirm a prolonged period of economic challenges, heavily influenced by RBNZ’s restrictive policies to control inflation.
Anticipated developments and forecasts
Looking ahead, the markets are bracing for further updates on inflation and economic growth rates.
“The RBNZ needs to see subdued growth in their fight against the inflation beast. And subdued growth is what they’ll see,” the Kiwibank economists said.
The upcoming data could set the stage for potential rate cuts later this year, aiming to boost confidence and economic momentum.
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