Key insights for the week.
The main data released in Australia this week was the monthly CPI indicator, which provides a range of information on current inflation trends. The Composite Index was surprised by May’s lows, falling 0.4% monthly, and the annualized rate fell to 5.6% from 6.8% in April. The details are largely predictable, with prices for many services still rising month-on-month. However, a sharp fall in holiday travel and accommodation prices (-11.3% m/m) more than compensated for this.
However, measures of underlying inflation have been more resilient, with the recently revived annual trimming average declining only from 6.7% to 6.1% p.a. I didn’t. Rather, the May update reinforces the fact that the monthly CPI metric is a volatile metric, making it difficult to get a clear figure throughout the quarter.
The decline in job openings was modest. From a high standpoint, vacancies are just 10% below their peak in May 2022, after falling 2.0% in the three months to May, but still close to levels observed before the start of the pandemic. It has doubled. This is in line with other labor market indicators, including the Labor Force Survey and business surveys such as the Westpac/ACCI Industry Survey, which show that the labor market has remained historically tight, with signs of easing temporary. suggests that it is not clear.
It is also interesting to note that retail sales unexpectedly turned around in May, up 0.7% m/m after their weakest since December. Given the backdrop of high inflation and strong population growth, it is best to assume that nominal spending will remain weak in May. Volume is expected to be flat in the second quarter.
As outlined by chief economist Bill Evans, continued inflation in the service sector and strength in the labor market are good reasons for the RBA to tighten further in July and August. And, importantly, then to maintain the resulting peak cash rate of 4.60% through 2024. That said, from May 2024 to the end of 2025, activity growth will remain well below trend, and unemployment will rise above baseline, necessitating coordinated policy easing. . RBA’s full employment estimate.
Offshore, the focus was on the ECB forum on central banks in Sintra, Portugal. Overall, policy committees including heads of the Bank of England, the Bank of Japan, the European Central Bank and the US Federal Reserve have revealed that further tightening is likely to prove necessary in the coming months. bottom.
ECB’s Lagarde continued to signal a rate hike in July, as expected by the Governing Council. But he pushed back on the idea that more moves were certain in September, citing a plethora of data to be released in the meantime. The persistent underlying inflation and strength in the labor market justify the ECB’s hawkish bias.
Looking back on June’s decision, Bank of England Governor Andrew Bailey said the step up to 50bp was because the bank determined that the data it had justified two more 25bp hikes. Bailey also noted that policy has been slow to propagate in this tightening cycle, with about 85% of all mortgages being fixed-rate loans. A tight labor market in the UK is expected to continue inflation concerns, and many companies are expected to retain their workforce during the imminent recession.
Unsurprisingly, FOMC Chairman Jerome Powell also stressed the strength of the labor market, but said momentum was heading in the right direction and risks were balancing. He also referenced the committee’s median forecast of two more rate hikes in 2023, but Powell also made clear that his actions at the FOMC remain data dependent. (Note: Powell later spoke at a Banco de Spain event, but his main focus was financial stability.)
In stark contrast to the above speaker, BOJ Governor Ueda then went on to citing modest “undertone inflation” and a continued belief that headline and core inflation would be below target towards the end of 2025, citing policy justified the deferment of
Combined with the light but constructive flow of data to the US and other markets, the above comments on policy have led the market to now take the US 2-Year and 10-Year Treasury yields as an example to ‘higher long-term interest rates’. We now factor in the possibility of Compared to the previous weekend, they were up 4.86%, 3.84%, 12bps and 10bps respectively. When it comes to short-term risk to policy rates, market concerns are acute for the UK, with one or two FOMC and ECB rate hikes priced in for five more rate hikes from December to February.
Now let’s move on to the received international data. Although modest in scale, the biggest surprise for the market was the revision of the third forecast for US GDP in the first quarter from 1.3% to 2.0% annually. This update occurred due to a mix of moderately strong consumption. Inflation fell slightly. and improving exports. The market reaction also appeared to be supported by initial unemployment claims falling back to near historic lows.
Earlier this week, as the supply of existing homes remained constrained in the U.S., May new home sales posted a massive 12% increase, but May pending home sales fell 21% year-on-year, according to S&P. Corelogic CS home prices rose 0.9% in April. proves the latter. Durable goods orders also rose 1.7% in May, but much of the increase came from the transportation sector, reportedly as automakers ramped up production as supply chain pressure eased.
