Market Update 14/08/2024

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Stocks rallied globally, with the strongest gains in the US, driven by a favourable PPI report and a positive NFIB survey. The S&P 500 rose 1.6%, the Euro Stoxx 50 increased by 0.5%, and the FTSE 100 climbed 0.3%. Meanwhile, the yield on the US 10-year note dropped by 6 bps to 3.85%.
 
This week, the market’s focus on US economic releases was primarily on the two key inflation reports, the PPI and CPI. The release of a mild PPI report overnight set the stage for the Fed to potentially start its easing cycle next month. The July Producer Price Index (PPI) for the US increased by 0.1% month-over-month, with the core measure remaining flat at 0.0%. The drop in core inflation was mainly due to a 1.3% decrease in trade service prices, which reversed the 1.4% rise seen in June. On an annual basis, headline PPI inflation rose by 2.2%, down from 2.7% in June, and core inflation eased to 2.4% from 3.0% the previous month. The CPI release tonight will be closely watched to further support the case for a rate cut.
 
In other economic news, the NFIB’s small business optimism index reached a 2.5-year high of 93.7, although this was mainly driven by a component measuring general business conditions, with most other components showing little to no change.
 
The weak data led to lower US interest rates, a drop in the USD, and a rise in US stocks.
 
NZDUSD has performed well again, it has been the strongest major currency, rising by 1% and testing levels around 0.6075. This performance has been supported by favourable US data (specifically the benign PPI) and a global rally in equities and overall risk assets. The NZD has steadily climbed over the past 24 hours, reaching a 4-week high of 0.6075. The recent shift in market positioning and the roughly 60:40 split among economists favouring a rate cut suggest that the NZD would see a larger move if the RBNZ decides to hold rates rather than cut them. If the RBNZ takes a hawkish stance, the NZD could push through the 200-day moving average at 0.6089, potentially reaching as high as the July peak of 0.6150. However, even if there’s no cut, any NZD rally may not last, as the market still expects multiple rate cuts, with around 90 bps priced in for this year and almost 200 bps by July 2025.
 
NZDAUD has risen to 0.9160, as Australia’s wage data released yesterday was generally in line with RBA and market expectations, offering no clear signal for an immediate rate cut or hike.
 
NZDJPY has climbed back above 89.20, with USDJPY at 146.80. Japan’s GDP figures are due out tomorrow at 11:50 am, and if the data shows signs of lasting economic growth, it could strengthen the BOJ’s hawkish stance, which previously contributed to yen gains.
 
NZDGBP continues to recover, trading at 0.4725. UK labor market data revealed an unexpected drop in the unemployment rate to 4.2% for the June quarter, driven by strong employment figures. However, caution is advised when interpreting the labor force survey. Wage data indicated further slowing, with average weekly earnings excluding bonuses rising by 5.4%, which, while still high, is significantly lower than the 7-8% growth seen a year ago. The market reaction to the data was minimal, with the next BoE rate cut still expected in November rather than September.
 
Today’s main focus locally is the RBNZ Cash Rate Statement at 2:00 pm.
 
Globally, attention turns to the US, with July CPI report tonight and the July Retail Sales data on Thursday night, both of which are significant. While CPI is the primary focus, retail sales are also important due to recent drops in average weekly hours from the latest NFP. This could indicate downside risks for retail sales, and any surprises could impact the market, especially given concerns about US economic activity. If either figure deviates significantly from expectations, it could lead to market volatility, though likely not as extreme as last Monday’s events.



Here are the latest mid-market rates:

NZD/USD 24 HOURS 

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