RBNZ To Decide On Interest Rates, Fed’s Powell To Testify Before Senate

The Reserve Bank of New Zealand (RBNZ) interest rate decision is one of the most important financial data released as the week starts with analysts looking forward to seeing what the bank’s policymakers have to say regarding the state of the island country’s economy.

Investors and traders will also keep an eye on Jerome Powell’s remarks before the US Senate, looking for clues related to the future monetary policy course. In Japan, the Nikkei 225 rose, hitting a new record-high, supported by soaring semiconductor company shares.

RBNZ Interest Rate Decision

Early on Wednesday morning, traders will learn the RBNZ’s decision on interest rates. The majority of analysts suggest that the RBNZ will keep its borrowing costs on hold. The central bank’s policymakers have found themselves to be between a rock and a hard place as rates are at multi-year highs, but inflation doesn’t seem to follow the targeted downward trajectory. In the meantime, economic activity has continued to stall while the labour market has shown some signs of cooling down.

Economists at ASB said that “we have changed our OCR outlook – we expect the RBNZ to cut the OCR from November this year. Households are starting to buckle more noticeably under the various pressures of high interest rates and high (though easing) living cost inflation.” It should be noted that the NZIER Quarterly Survey of Business Opinion revealed a further decline in business confidence in the second quarter of the year.

Jerome Powell To Testify Before US Senate

Fed’s head Jerome Powell will testify to the Senate Banking Committee today and the House Financial Services Committee tomorrow. Market analysts will focus on Powell’s remarks as he is expected to comment on monetary policy results and interest rate trajectory.

Last week, Powell attended the ECB Forum at Sintra, Portugal. In his remarks, he mentioned that the US central bank needs more data to ensure inflation has moderated sufficiently to be able to move forward with rate cuts. However, some market analysts suggest that the Federal Open Market Committee could lower borrowing costs in September with the CME FedWatch Tool giving a 73.6% chance on July 9th.

Morgan Stanley CIO: S&P 500 Could Drop 10% Before US Elections

In an interview with Bloomberg, Morgan Stanley’s Chief Investment Officer, Mike Wilson, said that a decline of 10% in the S&P 500 stock index before the U.S. presidential election in November is "highly likely." Wilson noted that the 17% YTD increase in the index’s value has been driven by a small number of companies. He also mentioned that "the average company has not had good earnings results."

Deutsche Bank Analysts: Trump And Tariffs Could Bring Euro-US Dollar Parity

Speaking to Bloomberg reporters, Deutsche Bank’s head of FX research, George Saravelos, said that tariffs imposed on Chinese products imported in the US and the potential election of Donald Trump as President could lead to parity between the euro and the US dollar.

Saravelos suggested that new tariffs on Chinese products would have a global market effect, adding: “Imagine a situation where the US puts up a huge tariff wall against China. All these Chinese goods would have to get diverted into other markets including Europe, so therefore we would see a big deflationary shock in Europe.”

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