Weekly Market Recap (14-18 August)


New Zealand
Services PMI for July plunges into contraction to the lowest level since
January 2022:

  • 47.8
    vs. 50.1 prior (revised from 49.6).

New Zealand Services PMI


Japan Preliminary
Q2 GDP beat expectations, but the deflator has also jumped substantially:

  • GDP
    Q/Q 1.5% vs. 0.8% expected and 0.7% prior.
  • GDP
    Y/Y 6.0% vs. 3.1% expected and 2.7% prior.
  • Deflator
    Y/Y 3.4% vs. 2.0% expected and 2.0% prior

The deflator
reading is the highest since 1981.

Japan Preliminary Q2 GDP

The PBoC
surprised with rate cuts
as China is in strong need of expansionary

  • MLF
    rate cut by 15 bps to 2.5% vs. 2.65% prior.
  • RRR
    cut by 10 bps to 1.8% vs. 1.9% prior.
  • SLF
    rate cut by 10 bps to 2.65% vs. 2.75% prior.

We can expect the
LPR rate cuts to follow next week.


Australian Wages
data for Q2 missed expectations:

  • Wage
    Price Index Y/Y 3.6% vs. 3.7% expected and 3.7% prior.
  • Wage
    Price Index Q/Q 0.8% vs. 1.0% expected and 0.8% prior.

Australia Wage Price Index YoY

The RBA released
the minutes of the August 2023 policy meeting where the central bank kept the
cash rate unchanged:

  • Board considered
    raising rates by 25bp or holding steady.
  • Board agreed on case
    for holding rates steady was the stronger one.
  • Board saw a “credible
    path” back to the inflation target with cash rates at current 4.1%.
  • Board agreed it was
    possible some further tightening might be needed.
  • Need for further
    hike would depend on data, evolving assessment of risks.
  • Inflation heading in
    the right direction, though service inflation too high.
  • Consumption had
    slowed significantly even as the full effect of past tightening yet to be
  • The labour market
    had been resilient, but early signs it might be at a turning point.
  • Board saw
    “plausible scenarios” where inflation took longer than
    acceptable to return to target
  • Controlling
    persistent inflation would require more rate rises than otherwise
  • Staff inflation
    forecast had assumed one more hike, rates notably lower than in other
  • Rise in housing
    prices could mean financial conditions not as tight as assumed.

It looks like the RBA
prefers to keep the cash rate steady unless we see big surprises in the data
that forces the central bank to go higher.


We got another set
of weak data from China as Industrial Production and Retail Sales missed

  • Industrial
    Production Y/Y 3.7% vs. 4.5% expected and 4.4% prior.
  • Retail
    Sales Y/Y 2.5% vs. 4.8% expected and 3.1% prior.

China Industrial Production YoY

The UK July Jobs
Report showed another jump in wage growth with the unemployment rate rising

  • Unemployment
    Rate 4.2% vs. 4.0% expected and 4.0% prior
  • Employment
    Change -66K vs. 75K expected and 102K prior.
  • Average
    Weekly Earnings 8.2% vs. 7.3% and 7.2% prior (revised from 6.9%).
  • Average
    Weekly Earnings Ex-Bonus 7.8% vs. 7.4% expected and 7.5% prior (revised from

UK Average Earnings ex-Bonus

The US July Retail
Sales beat expectations across the board:

  • Retail
    Sales M/M 0.7% vs. 0.4% expected and 0.3% prior (revised from 0.2%).
  • Retail
    Sales Y/Y 3.17% vs. 1.5% expected and 1.6% prior (revised from 1.49%).
  • Retail Sales Control Group 1.0% vs. 0.5% expected and
    0.5% prior (revised from 0.6%).

US Retail Sales YoY

The Canadian CPI
report beat expectations across the board with the Core measures remaining
elevated which is something that the BoC doesn’t want to see:

  • CPI
    Y/Y 3.3% vs. 3.0% expected and 2.8% prior.
  • CPI
    M/M 0.6% vs. 0.3% expected and 0.1% prior.
  • Core
    CPI Y/Y 3.2% vs. 2.8% expected and 3.2% prior.
  • Core
    M/M 0.5% vs. 0.4% expected and -0.1% prior.
  • Common CPI Y/Y 4.8% vs. 4.7% expected and 5.1% prior.
  • Trimmed CPI Y/Y 3.6% vs. 3.4% expected and 3.7% prior.
  • Median CPI Y/Y 3.7% vs. 3.7% expected and 3.7% prior
    (revised from 3.9%).

Canada Core Inflation Metrics

Housing Market Index missed expectations for the first time since December 2022
as higher yields are starting to bite again:

  • NAHB
    Index 50 vs. 56 expected and 56 prior.

US NAHB Housing Market Index

Fed’s Kashkari
(hawk – voter) acknowledged progress on inflation but remains wary of the risks
about letting go too early:

  • I feel good about progress
    on inflation but it’s still too high.
  • We have been
    surprised by the economy’s resilience.
  • Question is whether
    we have done enough or need to do more.
  • On average the
    banking system is stable and well capitalized.
  • The March banking
    event was a wake-up call for banks.
  • Housing market
    resilient has been one of the biggest surprises.
  • We underbuilt in
    housing and there’s a structural deficit.
  • The last couple
    inflation readings have been positive.
  • I want to see
    convincing evidence that inflation is on its way to 2%.
  • We need to avoid
    1970s style outcome where we stop hiking too soon.
  • We’re a long way
    from cutting rates because core is still close to 4%.
  • At some point next
    year, the Fed may need to lower rates.
  • Economy keeps exceeding expectations.
  • I’m not seeing any
    signs of a crisis in China, it’s something we’re watching.

Fed’s Kashkari


The RBNZ left its
cash rate unchanged at 5.5% as expected:

  • The current level of
    interest rates is constraining spending and hence inflation pressure, as anticipated
    and required.
  • Committee agreed
    that the OCR needs to stay at restrictive levels for the foreseeable
  • New Zealand economy
    is evolving broadly as anticipated.
  • Headline inflation
    and inflation expectations have declined, but measures of core inflation
    remain too high.
  • In the near term,
    there is a risk that activity and inflation measures do not slow as much
    as expected.
  • Committee is
    confident that with interest rates remaining at a restrictive level for
    some time, consumer price inflation will return to within its target range
    of 1 to 3% per annum

RBNZ forecasts:

  • Official cash rate
    at 5.54% in December 2023 (vs. prior at 5.5%).
  • Official cash rate
    at 5.57% in September 2024 (vs. prior at 5.43%).
  • TWI NZD at around
    71.0% in September 2024 (vs. prior at 71.5%).
  • Annual CPI 2.7% by
    September 2024 (vs. prior at 2.7%).
  • Official cash rate
    at 5.5% in December 2024 (vs. prior at 5.3%).
  • Official cash rate
    at 3.38% in September 2026.


Moving on to the RBNZ
Governor Orr’s Press Conference:

  • rise in OCR track is
    not forward guidance, not a strong signal out the Bank’s next move
  • wary about too much
    on rates.
  • encouraged to see
    inflation fall.
  • inflation is still
    too high.
  • the risk in the next
    few months is that activity could be stronger than expected.
  • ready to work
    through noisy data in the near term
  • there was not much
    talk of a rate cut, it was easy to reach consensus on the on-hold decision.
  • we are very
    comfortable with where the cash rate is
  • still on a path to a
    soft landing.

The RBNZ seems to be done
with its tightening cycle and only big surprises that point to a trend are
likely to force them to do more. Note also that Governor Orr in an interview
with Bloomberg Television on Thursday admitted that a recession is the “bare
minimum” to tame inflation

RBNZ Governor Orr

The UK July CPI comes in
line with expectations, but the Core measures beat the forecasts:

  • CPI Y/Y 6.8% vs. 6.8%
    expected and 7.9% prior.
  • CPI M/M -0.4% vs. -0.5%
    expected and 0.1% prior.
  • Core CPI Y/Y 6.9% vs.
    6.8% expected and 6.9% prior.
  • Core CPI M/M 0.3% vs.
    0.2% expected and 0.2% prior.

This doesn’t change
things for the BoE too much as the hike in September is already priced in, but looking forward it doesn’t look good.

UK Core Inflation YoY

The US Housing Starts
beat expectations with another downward revision to the prior data and Building
Permits missed forecasts:

  • Housing Starts 1452M vs.
    1448M expected and 1398M prior (revised from 1434M).
  • Starts 3.4% vs. -11.7%
  • Building Permits 1442M
    vs. 1463M expected and 1441M prior.
  • Permits 0.1% vs. -3.7%

US Housing Starts and Building Permits

The US Industrial
Production contracted again on a Y/Y basis, the first time since February 2021:

  • Industrial
    Production Y/Y -0.2% vs. -0.4% prior.
  • Industrial
    Production M/M 1.0% vs. 0.3% expected and -0.8% prior (revised from -0.5%).
  • Capacity Utilization
    79.3% vs. 79.1% expected and 78.6% prior (revised from 78.9%).

US Industrial Production

The Federal Reserve released the Minutes of the July
FOMC Meeting:

  • Uncertainty of U.S.
    economic outlook remains elevated; future Federal Reserve policy
    decisions to be driven by the totality of data from the July 25-26 meeting
  • Most participants
    said inflation risks could require further interest rate hikes
  • A number of
    participants warned of risks of accidentally tightening policy too much.
  • A couple of
    participants favoured holding interest rates steady at the July meeting.
  • A number of
    participants saw economic risks becoming more balanced.
  • Most participants
    saw continued ‘significant’ upside inflation risks
  • Participants said
    inflation was ‘unacceptably high,’ and more evidence is needed to be
    confident that price pressures are ebbing.
  • Participants said a
    gradual slowdown in economic activity appeared to be happening.
  • Participants still
    saw below-trend growth and a softer labour market as necessary for
    restoring economic balance
  • Amid uncertainty
    about monetary policy lags, participants said rate hikes are working as
  • The banking system
    is ‘sound and resilient,’ but tighter credit conditions are likely to
    weigh on the economy.
  • Staff no longer see
    the economy entering a mild recession this year and now predict
    below-trend growth in 2024 and 2025.
  • Participants said
    the labour market is still ‘very tight,’ although signs are emerging that
    labour demand is in better balance.
  • A number of
    participants noted that balance sheet runoff need not end when the
    Committee eventually begins to reduce the target range for the federal
    funds rate

Looking at the
Participant’s views on current conditions and economic outlook and organizing
by conviction showed:

1. Unanimous Views:

  • Economic activity
    has been expanding at a moderate pace.
  • The U.S. banking
    system is sound and resilient.
  • The extent of the
    effects of tighter credit conditions on economic activity, hiring, and
    inflation remains uncertain.
  • All participants agreed
    on the continuation of reducing the Federal Reserve’s securities holdings

2. Majority/Many Participants:

  • Real GDP growth
    showed resilience and momentum.
  • A gradual slowdown
    in economic activity is in progress due to monetary policy tightening.
  • Monetary policy
    tightening is working as intended.
  • Inflation remains
    above the Committee’s 2% objective.
  • Almost all
    participants judged it appropriate to raise the target range for the
    federal funds rate at the meeting.
  • Most participants
    saw significant upside risks to inflation

3. Some Participants:

  • Observed that recent
    increases in home prices suggest the housing sector’s response to monetary
    policy may have peaked.
  • Commented on
    conditions that could lead to higher or lower economic activity in the
    business sector.
  • Noted that
    significant disinflationary pressures had yet to become apparent in core
    services excluding housing
  • Emphasized the need
    for banks to be ready to use Federal Reserve liquidity facilities.
  • Commented on the
    continued downside risks to economic activity and upside risks to the
    unemployment rate.

4. A Few/Several Participants:

  • Commented on the
    vulnerabilities of the CRE market and the ongoing weakness of
    manufacturing output.
  • Observed that growth
    in payrolls had slowed but continued to exceed values consistent with an
    unchanged unemployment rate.
  • Commented that
    significant disinflationary pressures were not yet apparent in core
    services excluding housing
  • Noted the
    susceptibility of some nonbank financial institutions to runs or instability.
  • A couple of
    participants favoured leaving the target range for the federal funds rate
    unchanged or could have supported such a proposal.

5. General Observations:

  • Participants
    discussed the uncertainty about the effects of monetary policy on the
  • They stressed the
    need for more data to be confident about the path of inflation
  • Participants
    emphasized the importance of clear communication about the Committee’s
  • They discussed
    risk-management considerations for future policy decisions.

Federal Reserve


The Australian Jobs Report missed expectations with a
negative full-time employment reading and a jump in the unemployment rate:

  • Employment Change
    -14.6K vs. 15.0K expected and 32.6K prior.
  • Full-time
    Employment -24.2K vs. 39.3K prior.
  • Part-time
    Employment 9.6K vs. -6.7K prior.
  • Unemployment Rate
    3.7% vs. 3.5% expected and 3.5% prior.
  • Participation Rate
    66.7% vs. 66.8% expected and 66.8% prior.

Australia Unemployment Rate

The US Initial Claims beat expectations by very little margin while
Continuing Claims missed:

  • Initial Claims
    239K vs. 240K expected and 250K prior (revised from 248K).
  • Continuing Claims
    1716K vs. 1700K expected and 1684K prior.

US Initial Claims

The US Philly Fed Manufacturing Index jumped back into
the expansionary territory for the first time since August 2022:

  • Philly Fed index
    +12.0 vs -10.0 expected and -13.5 prior.
  • Six-month index +3.9
    vs. +29.1 last month.
  • Capital expenditures
    index -4.5 vs. +8.6 last month.
  • Employment index -6 vs.
    -1 last month.
  • Price paid index
    +20.8 vs. +9.5 last month.
  • New orders index
    +16.0 vs. -15.9 last month.

US Philly Fed Manufacturing Index

The US Leading Index declined
-0.4% vs. -0.4% expected and -0.7% prior. This is the 16th
consecutive negative reading.

US LEI Index

China’s second biggest
property developer Evergrande filed for Chapter 15 protection in a US
bankruptcy court. The health of Country Garden, China’s largest privately run
developer, is also worrying investors after the company missed some interest
payments this month.

Evergrande Group


Japan July CPI data beat expectations with the
core-core reading rising back to the cycle high:

  • Japan CPI Y/Y 3.3%
    vs. 2.5% expected and 3.3% prior.
  • Japan CPI Y/Y
    ex-Fresh Food 3.1% vs. 3.1% expected and 3.3% prior.
  • Japan CPI Y/Y
    ex-Food, Energy 4.3% vs. 4.2% prior

Japan Core-core CPI YoY

The RBNZ Assistant Governor Silk said that the
slowdown in China is a risk for global growth:

  • Said that there were
    “definitely reasons to be concerned” about the weakness in
    China’s economy:
    • consumer spending down
    • high
      debt in the property sector
    • the
      levers China had used previously to keep growth going were going to be
      harder to pull.
  • There are definitely
    some challenges there (in China), for sure.
  • The pressures that
    we’re starting to see offshore around that global growth…that’s the risk
    that we see on the downside through the medium term.

China is New Zealand’s
largest trading partner.

RBNZ Assistant Governor Silk

The UK Retail Sales missed expectations across the
board with prior readings all revised lower:

  • Retail Sales M/M
    -1.2% vs. -0.5% expected and 0.6% prior (revised from 0.7%).
  • Retail Sales Y/Y -3.2% vs -2.1% expected and -1.6% prior (revised from
  • Retail Sales ex autos, fuel M/M -1.4% vs -0.7% expected and 0.7% prior
    (revised from 0.8%).
  • Retail sales ex autos, fuel Y/Y -3.4% vs -2.2% expected and -1.6% prior
    (revised from -0.9%).

UK Core Retail Sales YoY

The highlights for next week
will be:

  • Monday: PBoC LPR.
  • Wednesday: NZ
    Retail Sales, AU/JP/EZ/GB/US PMIs, Canada Retail Sales.
  • Thursday: US
    Jobless Claims.
  • Friday: Fed Chair
    Powell speaks at the Jackson Hole Symposium (24-26 August).

That’s all folks, have a great weekend!



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