In New-Zealand the short-term interest rates were volatile as a single confirmed case of Delta variant forced the RBNZ to suspend a widely expected rate hike. The bank maintained its medium term economic views, so the impact beyond the 1y point was limited.
Global interest rates were almost unchanged in the 10y sector but did rally after the release of the FOMC meeting minutes, as the market expected a little more hawkishness than evident. Chair Powell’s headline speech at the Jackson Hole symposium which had been written off as uninteresting, became a much greater point of focus after the topic was announced to be “the economic outlook” and will probably become the markets next focal point.
Jun core retail sales was strong, at +4.7% MoM (4.5% exp., -2.0% prev.) and Jul trimmed mean CPI rose to +% 3.1% YoY (2.5% exp., 2.6% prev.)
In a week that was otherwise absent of data 2Q GDP won the dullest statistical release competition, printing at +2.0% QoQ (2.0% exp., 2.0% prev.) and +13.6% YoY (13.7% exp., 13.7% prev.)
Scandinavia The Norges Bank now looks to be the first G10 central bank to raise policy rates post March 2020. Whilst last week’s meeting left policy rates unchanged, at 0.0% (0.0% exp., 0.0% prev.), the accompanying statement contained the statement “the policy rate will most likely be raised in September”. The Norges bank now views financial imbalances to be a greater risk than lower unemployment or economic output. Jun mainland GDP +0.7% MoM (1.3% exp., 1.8% prev.) and 2Q mainland GDP +1.4% QoQ (1.6% exp., -1.0% prev.) with consumer confidence ticking higher to 10.9 (2.5 prev.)
Given the increasing lockdowns through the period 2Q GDP was surprisingly good, printing at +0.3% QoQ (0.1% exp., -1.0% prev.) and Jul core CPI beat expectations at -0.6% YoY (-0.8% exp., -0.2% prev.) However, PM Suga’s approval ratings have gone in the opposite direction dropping below 30% – a level that historically has been associated with a change in PM. The drop has been strongly correlated to the current outbreak of Covid19. The public’s lack of enthusiasm for an Olympics they couldn’t attend due to low vaccine availability and the exposure of a country vulnerable to Covid19 by Olympic personnel who have a high probability of importing it, has been largely responsible.
Jun employment data didn’t quite match expectations, but was healthy, printing +95k 3M/3M (100k exp., 25k prev.) Harmonized CPI printed +2.1% YoY (2.3% exp., 2.4% prev.) and Core CPI at +1.8% YoY (2.0% exp., 2.3% prev.) with only the RPI measure surprising to the upside. Core retail sales dropped -2.4% MoM (0.1% exp., 0.3% prev.) and 1.8% YoY (5.8% exp., 7.4% prev.) a switch towards spending in the services sector was thought to be the reason.
The FOMC minutes were duly raked over for indications of what comes next, they included the statement “appropriate to start reducing the pace of asset purchases this year.” and with the strong July employment report published after the meeting the support for a start to tapering this year looks to have increased. Additionally, there was broad support for the proportional tapering of Treasuries and MBS as well as a reaffirmation that there is no mechanical link between tapering and the start of policy rate normalization. On inflation, the staff forecast for PCE inflation to fall below 2% in 2022 was notable and certainly looks to be tested going forwards.
The week’s disappointment came from the Philadelphia Fed business outlook 19.4 (23.1 exp., 21.9 prev.) the empire manufacturing 18.3 (28.5 exp., 43 prev.) and core retail sales at -0.7% MoM (-0.1% exp., 1.1% prev.) Against this, positive data same from industrial production, at +0.9% MoM (0.5% exp., 0.4% prev.) and business inventories which printed at +0.8% MoM (0.8% exp., 0.5% prev.)
Jul unemployment rate to +4.6% (5.0% exp., 4.9% prev.) beating expectations and logic with Sydney area in extended lockdown. However, the drop in NSW’s participation rate was fingered as the explanatory factory and the ex-NSW data was viewed as strong, albeit partly because Victoria emerged from a mini lockdown.
Covid19 stole the headlines, forcing the RBNZ to leave policy rates unchanged at 0.25% (0.5% exp., 0.25% prev.). This deviation from the previously announced policy path was caused by an optimistically reported single covid case. In fairness to the reporting, more cases were expected and by the weekend the case count was up to 60 with over 300 locations of interest being investigated. Looking forwards, the RBNZ indicated that unless the economic impact is significant, they will revert to the original path of rate hikes.