(Reuters) – A look at the day ahead at Stella Qiu’s European and global markets
The Reserve Bank of New Zealand is known for its tendency to surprise, and this time is no different.
On Wednesday, the RBNZ cut rates by 25 basis points to 5.25%, surprising the majority of economists polled by Reuters. It was the first policy easing since March 2020 and a year ahead of its own projections.
As recently as May, there were serious warnings of more interest rate increases, so the abrupt reversal was an eye-catcher. RBNZ chief Adrian Orr explained in a presser that “if the facts change, so do we”.
It is the latest major central bank to ease policy, following policymakers in Europe, Canada and Britain, and could perhaps send a signal to those still holding firm in the face of persistent inflation.
Yes, looking at you, the Reserve Bank of Australia, which has all but ruled out rate cuts this year.
The RBNZ appears confident that New Zealand inflation, which stood at 3.3% last quarter, will return to its target range of 1-3% this quarter, and does not have to wait for the actual figures take action in the third quarter.
Notably, it also forecast a cash rate of 4.92% in December, meaning they see room to cut perhaps twice more by Christmas. Markets agree, having already fully priced in another easing in October, with some chance of a 50 basis point move.
The dollar deservedly fell 1%, while key two-year swap rates fell 11 basis points to the lowest level since mid-2022.
Elsewhere, most Asian stocks welcomed data showing US producer prices rose less than expected, raising hopes that consumer price inflation would be benign later in the day.
European futures are pointing to a higher open ahead of inflation data from Britain, where core annual rates appear to be slowing even as the headline figure rises. EUROSTOXX 50 futures rose 0.2% and rose 0.3%.
Adding to the busy news flow in Asia, Japanese Prime Minister Fumio Kishida would resign in September, ending a three-year term marked by rising prices and marred by political scandals.
The yen strengthened slightly and the benchmark gave up gains to fall below 0.2%, a modest response to political uncertainty.
Key developments that could impact the markets on Wednesday:
— UK inflation data for July
— US CPI data for July
— Eurozone GDP, industrial production data
— Fed Atlanta President Raphael Bostic speaks
(by Stella Qiu; editing by Jacqueline Wong)
