It was another challenging week for financial markets as the outlook for global economic growth continues to moderate. Weaker than f’cst payroll numbers out of the US increased market rhetoric that the US Fed will need to do more (i.e. a 50bps rate cut) when it meets next week. We continue to expect that the Fed will look at an initial 0.25% (25bps) cut to 5.25%, but with the likelihood of a further 50bps cut over the 4q24 taking the cash rate to 4.75%. A larger Sept cut may highlight to the market that the Fed is indeed be ‘behind the curve’, a perception which we believe the Fed wants to avoid in order to curtail higher market volatility, preferring to follow a steady path of rate cuts akin to the process it followed when raising the cash rate.
Domestically, the Treasurer came out swinging against the RBA, declaring it was ‘smashing the economy’ after the release of the anaemic 2q24 GDP figures (+0.2%). With the domestic reporting season wrapped up it is clear that the economy is slowing at a quicker pace with consumers increasingly more circumspect on discretionary consumption with household spending up only 2.9% y/y, (-0.4% to f’cst). And with iron ore prices declining further over the week on weak demand growth and excess inventories, the pressure on the domestic economy will only increase through the latter stages of 2024.
While it’s a relatively quiet week on the domestic side with only WBC Consumer Conf and NAB Business Confidence/Conditions, there is a raft of data out of the US, led by the CPI for Aug with headline inflation to be (f’cst) +0.2% m/m and 2.6% y/y. In addition, input (PPI) prices along with jobless claims data and the U. of Mich sentiment and Empire Manufacturing surveys will provide valuable data to the near term trajectory of the economy.
In Europe, the ECB meets with markets anticipating a further 0.25% cut in the deposit facility rate (to 3.50%). In China, the release of PPI (f’cst -1.5% y/y) and CPI (f’cst +0.7% y/y) data will be the major focus. Further declines in input costs will continue to highlight ongoing deflationary pressures across the economy, compounding the already weak economic outlook and adding further pressure on the PBOC and Chinese government to provide additional stimulus. We continue to expect further decline RR ratio into the end for CY24.
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