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Weekly Market Preview
Friday, July 05 2024
Last week, the Fed Chairman noted that inflation levels had significantly declined. However, Mr. Powell emphasised that the Federal Open Market Committee members need more evidence of a further decline towards their 2% target before considering any interest rate cuts. Such evidence could come from a further retreat in upcoming data. Consequently, investors believe the Fed may wait for inflation and labour market reports for July and August before making any changes to current monetary policy. Markets are seeking more clarity from Mr. Powell’s testimony before the US Congress this week.
Additionally, investors will be closely watching the New Zealand Reserve’s interest rate decision, which is expected to maintain the current rates at 5.5%. Despite New Zealand’s inflation levels falling to 4%, they remain well above the 2% target. Therefore, markets do not anticipate any changes in interest rates, at least until the second quarter’s inflation data is released and its proximity to the target is assessed.
Furthermore, the US Consumer Price Index (CPI) report for June is highly anticipated. According to Bloomberg, expectations are for the month over month core inflation level to stabilize at 0.2% and the year-over-year at 3.4%, while the year-over-year headline inflation could fall from 3.4% in May to 3.1% in June. Any lower-than-expected data would increase market expectations of a 25-basis point rate cut at the FOMC September meeting. Current expectations for this reduction have surpassed 65%, according to Bloomberg.
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