Ahead of the game: 5 August 2024

• The Fed kept the Federal Funds rate unchanged at 5.25% to 5.50% as expected, and signaled that it was ready to cut rates in September should inflation continue to ease
• JOLTS Job Openings increased to 8.184 million in June from 8.05 million prior
• The ISM Manufacturing Purchasing Managers' Index (PMI) fell to 46.6 in July from 48.5 the previous month, the sharpest contraction since November 2023
• Initial Jobless Claims rose to 249,000 (consensus 236,000), the largest rise since August 2023
• Euro Area Q2 gross domestic product (GDP) rose by 0.6% year-on-year (YoY), the most in five quarters
• Euro Area Core Inflation increased by 2.9% YoY in July, higher than market expectations of 2.8%
• The Bank of England (BoE) cut rates by 25 basis points (bp) to 5%
• The Bank of Japan (BoJ) raised rates by 15 bp to 0.25% and said it would continue to raise the policy rate if economic growth and prices unfold as expected
• In China, the Caixin Manufacturing PMI slipped to 49.8 in July from 51.8 in June
• The Reserve Bank of Australia’s (RBA) preferred measure of inflation, the trimmed mean, rose by 0.8% in the June quarter (consensus was +1.0%), allowing the annual rate to fall to 3.9% from 4.0% prior: locking in a sixth quarter of lower annual trimmed mean inflation
• Crude oil fell 0.43% this week to $76.83, as concerns over the growth outlook in China and the US weighed
• Gold gained 2.45% this week to $2445, boosted by expectations of Fed rate cuts
• Wall Street's gauge of fear, the Volatility Index (VIX), surged to 18.58 from 16.38 prior.
  

• AU: RBA interest rate meeting (Tuesday, 6 August at 2.30pm AEST)
• NZ: Unemployment (Wednesday, 7 August at 8.45am AEST)
• AU: NAB Business Confidence (Thursday, 8 August at 11.30am AEST)

• JP: BoJ Interest rate meeting minutes (Monday, 5 August at 9.50am AEST)
• CN: Caixin Services PMI (Monday, 5 August at 11.45am AEST)
• CN: Trade Balance (Thursday, 8 August at 1.00pm AEST)
• CN: CPI and PPI (Friday, 9 August at 11.30am AEST)

• US: ISM services PMI (Tuesday, 6 August at 12.00am AEST)

• EA: Retail Sales (Tuesday, 6 August at 7.00pm AEST)

• JP

BoJ interest rate meeting minutes

Monday, 5 August at 9.50am AEST

At the recent policy meeting, the BoJ hiked its policy rate to around 0.25% from a range of 0 to 0.1%, marking its second rate increase this year. The central bank also offered more clarity on its quantitative tightening (QT) plan, which is to reduce its monthly pace of bond buying to around ¥3 trillion by the first quarter of 2026.

Current market rate expectations suggest the BoJ will hike rates further by the end of this year. BoJ Governor Kazuo Ueda indicated that the central bank is open to continuing to raise rates if the economy and prices move in line with their outlook. Furthermore, he stated, “the real interest rate is at a very low level” despite the recent hike.

More clarity around policymakers’ thinking behind the 7-2 majority vote to raise rates in July may be sought from the minutes, with the risks of higher inflation and stronger wage growth likely to be a crucial factor behind the decision.

BoJ policy rate chart

• US

ISM services PMI

Tuesday, 6 August at 12.00am AEST

In June, the ISM Services PMI plummeted to 48.8 from 53.8 previously, marking its sharpest contraction since COVID-19. Across the sub-indices, Business Activity, New Orders, and Employment all declined. Survey respondents noted that, generally, business is flat or lower, and although inflation is easing, some commodity prices were significantly higher.

For July, the market anticipates a rebound to 51, moving back into expansionary territory, which would help alleviate concerns of a slowdown.

ISM services PMI chart

• AU

RBA interest rate meeting

Tuesday, 6 August at 2.30pm AEST

As widely expected, the RBA kept its official cash rate on hold in June at 4.35% for a fifth consecutive meeting. However, the accompanying statement and press conference by RBA Governor Bullock sounded hawkish.

The Governor noted that the board debated between a hike and a hold, sounding more cautious, noting that "the narrow path is getting narrower" and that "a lot needs to go our way." The reintroduction of a comment at the end of its post-meeting statement that the RBA "will do what is necessary" to achieve a return of inflation to target reinforced its hawkish bias.

"The board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome."

During the press conference in May, Governor Bullock emphasised the importance of the June quarter inflation update: "Yes, the quarterly consumer price index (CPI) will be important", which this week provided a welcome mix of cooler inflation readings.

Specifically, the RBA's preferred measure of inflation, the trimmed mean, rose by 0.8% in the June quarter (consensus was +1.0%), allowing the annual rate to fall to 3.9% from 4.0% previously, marking a sixth quarter of lower annual trimmed mean inflation.

The cooler June quarter core inflation reading increases confidence that inflation can end the year at or close to the RBA's forecast of 3.4%. While the RBA's messaging is likely to remain hawkish and be accompanied by modest lifts in inflation targets, we expect the RBA to stay on hold next week at 4.35% before a first rate cut in December.

RBA official cash rate chart

• CN

CPI and PPI

Friday, 9 August at 11.30am AEST

China's June inflation numbers came in lower than expected, with consumer prices edging down to 0.2% YoY from 0.3% prior. A subdued CPI for the fourth straight month continues to point towards weak domestic demand in the world's second-largest economy, with prices dragged lower across various categories ranging from vehicles and household appliances to communication devices and rents.

Producer prices were slightly more favourable, registering their smallest contraction since February 2023 at -0.8% YoY. That said, soft inflation figures remain a sign of broader economic weakness, which supports the People's Bank of China (PBOC)'s recent decision to lower its seven-day reverse repo rate, as well as both the one-year and five-year loan prime rates. Any fall in consumer prices back into deflationary territory may further raise the case for additional monetary policy easing.

China's CPI and PPI chart

• US

Q2 2024 earnings

The US Q2 2024 earnings season continues, with earnings reports scheduled from companies such as Caterpillar, Uber, Walt Disney, and Super Micro Computer.

Earnings dates chart