On Monday, main news out of Japan, where Bank of Japan (BoJ) released their latest report for Economic Activity and Prices. This document provides valuable insight into the perspective of BoJ and how they view their economic conditions and inflation – the key factors that shape the monetary policy. It stated that Japan’s economy is projected to continue expanding through fiscal year 2021, despite being affected by overseas economic conditions. Exports are likely to rise with domestic demand likely following an uptrend. CPI has showed some weak developments recently and the year-on-year rate for the change in CPI is likely to increase towards 2 percent. In the foreign exchange market, the Japanese Yen has appreciated against the pound and the euro.
Not much economic activity took place on Tuesday other than the quarterly CPI report out of Australia. The Australian Bureau of Statistics released a report which stated that the CPI rose 0.6% this quarter following the stalled movement in the first quarter. Biggest change contributed to the CPI was automotive fuel prices which rose 10.2%. The Australian dollar is down 2.52% against the US dollar since the beginning of July.
Canada reported its monthly GDP that came in at 0.2% vs 0.1% expected, up for a third consecutive month. This was led by an increase in the manufacturing industry as 13 from the 20 industrial sectors have been expanding.
Big news out of US as the Fed decided to cut interest rates for the first time in over a decade. The Committee decided to maintain a target federal funds rate of 2-1/4 to 2-1/2 percent. The FOMC Statement stated that the labor market continues to strengthen, and economic activity has been rising at a solid rate. Negative reactions came from Trump as he said that Fed chief Jerome Powell did not deliver a rate cut that was aggressive. In the markets, S&P 500 was down 1.09% at the close and DJIA dropped more than 300 points after the interest rate cut.
Thursday was all about the pound sterling as the official bank rate was reported and the release of their newest monetary policy summary until unexpected news came in that Trump had imposed new tariffs.
Great Britain’s monetary policy committee voted unanimously to maintain the Bank Rate at 0.75%. UK’s economy has slowed down due to Brexit uncertainty and inflation has fallen back to the 2% target level. Future interest rates will be determined depending on where inflation stands.
Unexpected news from the White House as President Trump tweeted that he would impose a 10% tariff on $300 billion worth of Chinese imports. Trump had said that Chinese President Xi Jinping is not making any progress to resolve the trade war and warned that these tariffs might rise to 25% if further negotiations are stalled.
First Friday of each month is a volatile one due to the Non-Farm Payroll reports are to be released along with the unemployment rates bringing uncertainty within the volatile US dollar. Non-Farm Employment change came out as expected at 164,000 jobs added in July with the unemployment rate at 3.7% vs 3.6% expected. Employment gains were seen in the health care sector, professional and technical services, and financial activities.
Next week we have New Zealand reporting their unemployment changes on Monday followed by rate decision on Tuesday along with Australia. Muted Wednesday with Reserve Bank of Australia releasing their monetary policy statement on Thursday and finally, GDP figures out of Great Britain and unemployment numbers from Canada on Friday.
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Writer: Saket Patel
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