Financial markets struggled over the week as higher bond yields saw weakness in both equity and bond markets. The rise in yields continued the thematic around the timing of any rate cuts with the hawkish comments by RBNZ Governor pointing to the fact that global rate cuts will be pushed further back into 2024. The higher than forecast UK CPI data highlights the volatile nature of global inflationary data.
This week will see markets focused on the Fed’s preferred measure of inflation (PCE, f’cst 2.8% y/y, no change pcp) as well as the (revised) 1q24 GDP (f’cst 3.1%). The PCE data is expected to show that tradable goods inflation remains flat/slightly negative, with services and non-durable good inflation also f’cst to move lower, led by a sharp drop in airfares over the period. In addition, slower hiring and wages growth will continue to see services inflation moderate, although we still see services inflation (f’cst2.9%) to be the major driver of current and prospective inflationary pressures.
In Europe, the release of CPI data (f’cst core 2.7%, no change pcp) along with economic confidence and jobless data (f’cst 6.5%, no change pcp) will provide further details on the near-term growth outlook for the region. However, with the war in Ukraine into its 3rd year, combined with increased flooding of cheaper imported Chinese goods (post the US decision to increase tariffs on Chinese made goods), particularly in the auto sector but also including lithium batteries and solar panels, the economic pressure on the region’s two largest economies in Germany and France remains. In Aust, the release of the monthly inflation print for Apr (f’cst 3.40%, -0.1% pcp) continues to show elevated price pressures.
With ongoing fiscal spend, we see little room for the RBA to cut cash rates anytime soon. Building approvals data (f’cst +1.5%, -0.4% pcp) is also set to reflect a moderating growth outlook for new dwellings reflective of the higher interest rate environment. In China, PMI data is f’cst to point to a continued improvement in both the manufacturing (f’cst 50.4 pts) and non-manufacturing (f’cst 51.5 pts) sectors. The challenge for China continues to be weak domestic demand, which is seeing a flood of cheap Chinese exports to the US and Europe. This will continue to add to geopolitical trade pressures across both sides of the Atlantic through 2h24.
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