A look at the day ahead in European and global markets from Rae Wee.
Central bankers across the globe are expressing confidence that markets may be entering an era of lower rates, as they have overcome the challenge of inflation that has persisted for some time.
The Reserve Bank of New Zealand (RBNZ) announced on Wednesday, following its policy meeting, that headline inflation is expected to return to within the 1% to 3% target range in the second half of this year. This marks a shift to a less hawkish tone compared to earlier statements in May. Traders quickly responded by increasing bets for rate cuts in New Zealand, causing the kiwi to slide by 0.7%.
This decision by the RBNZ comes after Federal Reserve Chair Jerome Powell’s remarks to Congress, where he stated that the U.S. economy is no longer overheated and the job market has cooled from its pandemic-era highs. Market expectations for a Fed rate cut in September have risen to over 70%, a significant increase from just a month ago.
Powell is set to testify before the House Financial Services Committee later on Wednesday, with focus likely shifting to Thursday’s U.S. inflation report. A surprising increase in inflation could impact the case for rate cuts.
In Japan, there is a different narrative, as an uptick in wholesale inflation in June has kept expectations alive for a potential rate hike by the central bank. The Bank of Japan is expected to adjust its economic growth forecast in July, while projecting that inflation will remain around its 2% target in the coming years.
Aside from rate movements, data from China showed that consumer prices grew for the fifth consecutive month in June but fell short of expectations. Producer price deflation continued, reflecting weak domestic demand despite government support measures. Retailers in China have been offering discounts on various goods in response to sluggish consumer spending and an uncertain economic outlook.
The yuan continued to weaken on Wednesday, reaching its lowest level since November.
Key developments to watch on Wednesday include the UK RICS Housing Survey for June, the reopening of a 14-year German government debt auction, and Powell’s testimony before the House Financial Services Committee.
(Editing by Muralikumar Anantharaman)