Markets bet the Fed has won its battle against inflation

Kia ora,

Welcome to Tuesday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.

I'm David Chaston and this is the international edition from Interest.co.nz.

Today we lead with news that US dollar has fallen to a seven-month low as American disinflation extends in their economy and that is raising expectations of rate cuts in each of the Fed's remaining three reviews this year.

US equity markets are rising on the same expectation, with the S&P500 moving back to again challenge its mid-July all-time high. They seem to be voting with their money that the US Fed has in fact engineered a soft-landing, or better, and that the trajectory from here is 'up' on the back of an aggressive easing cycle from the Fed.

However, the US Conference Board's leading indicators slipped a bit more than expected in July, but they also said the six-month trend no longer indicates a recession ahead.

Meanwhile, the Atlanta Fed's GDP Now tracker still sees good +2% growth in Q3-2024 for the US economy, better than the 'blue chip' analysts that they benchmark against.

Japan said core machinery orders, which exclude those for ships and electric power companies, rose by +2.1% in June from May, better than expected. It was on the back of an upturn in orders for the service sector. In JPY, these orders were up +2.6% from the same month a year ago.

Later today, China will release its latest review of its Loan Price Rates but no changes are expected. These rates are already at all-time lows.

The lackluster Chinese economy has sharp consequences for Australia. Australia shipped AU$138 bln of iron ore in the year to June. A Canberra report projected that to fall to AU$114 bln in the next 12 months and AU$102 bln in the following as prices continue to fall. That could leave a AU$3 bln hole from royalties in the Australian Federal results. The wider Australian economy will have downside risks from this too.

The UST 10yr yield is now at just on 3.87% and down -1 bps from this time yesterday. 

The price of gold will start today down -US$6 from yesterday at US$2502/oz.

Oil prices are down -US$2 at just on US$73.50/bbl in the US while the international Brent price is now just on US$77.50/bbl.

The Kiwi dollar starts today up +½c from yesterday at 61 USc. Against the Aussie we are a tad softer at 90.7 AUc. Against the euro we are up +20 bps at 55.1 euro cents. That all means our TWI-5 starts today at 69 and up +20 bps from yesterday.

The bitcoin price starts today at US$59,252 and down -0.5% from this time yesterday. Volatility over the past 24 hours has been modest at just on +/- 1.7%.

You can find links to the articles mentioned today in our show notes.

You can get more news affecting the economy in New Zealand from interest.co.nz.

Kia ora. I'm David Chaston. And we will do this again tomorrow.