The Reserve Bank of New Zealand stole the show early today with a surprise interest rate cut, but data from the UK and US quickly drew attention to other market themes.
How did your favorite assets trade on Wednesday?
Let’s discuss the headlines:
Headlines:
- The Reserve Bank of New Zealand surprised markets by cutting interest rates by 25 basis points. He hinted at further interest rate cuts.
- Japanese Prime Minister Fumio Kishida He announced that he will not seek re-election as leader of the ruling Liberal Democratic Party in September.
- Inflation in the United Kingdom Core inflation rose from 2.0% y/y to 2.2% y/y, its first acceleration since December; core CPI fell from 3.5% to 3.3% (3.4% expected)
- UK PPI Input Prices July: -0.1% m/m (-0.3% expected, -0.4% previously); PPI Output flat (0.1% expected, -0.7% previously)
- Eurozone GDP Maintained growth of 0.3% QoQ as expected in Q2 2024
- Eurozone employment change It rose 0.2% on a quarterly basis in the second quarter of 2024 after rising 0.3% in the first quarter.
- US Consumer Price Index Growth accelerated from -0.1% m/m to 0.2% m/m in July; Core CPI rose 0.2% m/m as expected (0.1% previously); Annual inflation fell from 3.0% y/y to 2.9%
- Crude Oil Inventories from the US Energy Information Administration It reflected an increase of 1.4 million barrels in the week ended August 9, which was more than the expected decrease of 1.9 million barrels and a decline of 3.7 million barrels in the previous week.
- Japan’s primary GDP Increased from -0.5% to 0.8% (0.6% expected) in Q2 2024
Price movement in the broad market:
Dollar Index, Gold, S&P 500, Oil, 10-Year US Treasury Yield, Bitcoin Chart by TradingView
Most major assets traded in ranges during the Asian and early European sessions, but there were some bouts of volatility during key data releases.
For example, spot gold and U.S. crude oil prices briefly fell after the Reserve Bank of New Zealand unexpectedly cut interest rates and indicated that this was just the “first step” in a monetary policy easing cycle. Risk sentiment was also hit after Japan’s prime minister announced he would not run in an election scheduled for September, adding a layer of uncertainty to the mix.
Things got a little more volatile during the European session. US oil prices extended their downward trend during the week, likely due to growing concerns about global growth and chatter about ceasefire talks between Hamas and Israel. In the US, cooler inflation data fueled speculation about a possible interest rate cut by the Federal Reserve, which likely helped push US stocks higher and pushed the 10-year Treasury yield to around 3.81%.
The US dollar initially fell after the CPI report but eventually reversed course and is likely to pressure other currencies. Gold prices fell to $2,440, Bitcoin (BTC/USD) fell from $61,800 to around $59,000, and WTI crude ended the day near $77.00 after hitting highs near $79.00.
Forex Market Behavior: US Dollar vs Major Currencies:
US Dollar Overlay Against Major Currencies Chart by TradingView
The New Zealand dollar and Japanese yen grabbed the spotlight early today. The Kiwi dollar was dragged lower by the Reserve Bank of New Zealand’s surprise interest rate cut and hints of more monetary easing. Meanwhile, the Japanese yen took a hit in late Asian trading after news broke that Japan’s prime minister will not seek re-election in September.
In early European trading, the US dollar was slightly lower against its European counterparts, likely due to some profit-taking ahead of the US CPI release.
The inflation report, which showed cooler-than-expected numbers for July, fueled talk of a Fed rate cut and sent the dollar lower for about an hour after the report was released. However, the US dollar eventually recovered those losses, perhaps because many traders had already anticipated weaker readings after Tuesday’s weak US producer price index data. By the end of the day, the dollar was slightly higher and finished near its opening level.
Potential catalysts coming up on the economic calendar:
- China Industrial Production, Retail Sales, Fixed Asset Investment, Unemployment Rate at 2:00 AM GMT
- Japan revises industrial production at 4:30 am GMT
- UK Preliminary GDP at 6:00 AM GMT
- UK Goods Trade Balance at 6:00 am GMT
- UK Industrial Production at 6:00am GMT
- UK Manufacturing Production at 6:00am GMT
- Canada Wholesale Sales 12:30 PM GMT
- US Retail Sales 12:30 PM GMT
- US Empire State Manufacturing Index at 12:30 PM GMT
- US Federal Reserve Manufacturing Index Philadelphia 12:30 PM GMT
- US Industrial Production at 1:15 PM GMT
- NAHB US Housing Market Index at 2:00 PM GMT
- Australia CB Leading Index at 2:30pm GMT
- New Zealand Manufacturing Index at 10:30pm GMT
- New Zealand PPI report at 10:45pm GMT
Market participants are bracing for another round of high-profile data releases, this time starting with the Chinese data dump during the Asian session.
The UK will also publish its preliminary readings on GDP and industrial production, followed by retail sales figures and a slew of manufacturing data from the US.
While reports may not inspire widespread and sustained market reactions on their own, they can impact individual currencies and overall risk sentiment. So make sure you’re glued to the TV so you don’t miss any potential catalysts!