RBNZ Rate Decision And UK CPI Inflation Report In The Spotlight
The Reserve Bank of New Zealand (RBNZ) interest rate decision and the UK CPI inflation for the month of July will draw attention of investors and traders tomorrow.
The UK pound climbed to a one-week high against the US dollar on Tuesday morning as traders reacted to the unexpected drop in UK unemployment as the Office for National Statistics (ONS) report showed.
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RBNZ Interest Rate Decision
On Wednesday morning, markets will learn the RBNZ’s interest rate decision. Most economists expect the central bank’s board to keep the Official Cash Rate (OCR) unchanged at 5.5%. However, market analysts will scrutinise the post-meeting statement for clues regarding potential rate reductions in October or November.
The RBNZ has expressed its concern for CPI inflation, especially the services part of it which remains elevated following the path of other major economies. ING’s currency analysts noted that “we narrowly favor a hold in August but see a greater chance that the RBNZ will cut 50 bps in October after the Fed has moved first. Ultimately, with over 90 bps of easing priced in by year-end, the difference between a hawkish cut and a dovish hold may not be huge: we still think easing bets can be trimmed by year-end.”
UK CPI Inflation Report
The ONS will release its July CPI inflation report on Wednesday morning. Economists expect CPI inflation to come in at 2.3% on an annualised basis, higher than the 2.0% figure recorded in June. Core CPI inflation though is expected to come in lower at 3.3%. Catherine Mann, a member of the Bank of England's (BoE) Monetary Policy Committee, said on Monday that goods and services prices were set to rise again and wage pressures in the economy could take years to dissipate.
As data released on August 1st showed, the BoE forecasts inflation to rise from the current 2% to 2.75% in the next months. The Office for Budget Responsibility (OBR) expects inflation to average out at 2.2% in 2024, before falling to 1.5% in 2025.
UK Unemployment Rate Falls, Wages Growth Rate Hits 2-Year Low
The UK’s unemployment rate dropped unexpectedly to 4.2% in the April-June quarter which was the last quarter before July’s parliamentary elections. Analysts had expected the unemployment rate to come in at 4.5%, rising from 4.4%. The ONS accompanying report said that “the medium-term picture remains somewhat subdued with the employment rate still lower than a year ago and the growth rate in the number of payrolled employees having slowed over the year.”
Average earnings excluding bonuses surged by 5.4% in the April to June quarter, marking the lowest increase since mid-2022. ING economists speaking to The Guardian said that “in the short term, we think the stickiness in wage growth will keep the Bank moving cautiously on rate cuts. But assuming there is further progress on both that and services inflation over the next few months, we think the Bank will accelerate the pace of cuts beyond November. We expect Bank Rate to fall to 3.25% by this time next year.”
IEA: No Change To 2024 Oil Demand Outlook
The International Energy Agency (IEA) did not change its global oil demand outlook for 2024 in its latest report. However, the agency cut its outlook for 2025, noting that reduced demand in China may create headwinds.
IEA’s analysts suggested that oil production cuts implemented by OPEC+ member countries are tightening physical markets. They also stressed that weak economic growth in China is now significantly dragging on global gains. The report ends by noting that an oil supply deficit could be in the cards as the US summer driving season is set to be strongest since the pandemic era.
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