Economy
Asia stocks rally, USD restrained before inflation test looms
Asian share markets rallied on Monday on hopes a key reading on U.S. inflation will show some cooling, while the U.S. dollar was limited by the risk of higher European interest rates and Japanese intercession.
Holidays in China and South Korea made for slow trading, while brokers were unsure what implications Ukraine’s surprising success against Russian powers could have.
MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) added 0.5%, having bounced modestly from a two-year low hit last week. Japan’s Nikkei (.N225) added another 1.1%, after rallying 2% last week.
Chinese blue chips (.CSI300) firmed 1.3% ahead of retail and industry data due later in the week that may show some improvement in August after a disappointing July.
Wall Street struggled to extend Friday’s bounce with S&P 500 futures and Nasdaq futures flat. EUROSTOXX 50 futures gained 0.6% and FTSE futures 0.2%.
Bulls are hoping Tuesday’s reading on U.S. customer costs will hint at a peak for inflation as falling petrol prices are seen pulling down the headline index by 0.1%.
The core is figure to rise 0.3%, though some analysts see a chance of a softer report.
“Arguably, with the economy having contracted through the first half, and household discretionary spending capacity under significant pressure, we are due a modest downside surprise,” said economists at Westpac.
“As such, we forecast +0.2% for core and -0.2% for headline,” they added. “If achieved though, it should not be assumed that October and beyond will see repeats, with volatility likely to persist.”
A delicate number might revive speculation the Federal Reserve will only hike by 50 basis points this month, though it would likely have to be very weak to have a real impact given how stridently hawkish policymakers have been as of late.
The market at present implies an 88% chance the Fed will hike by 75 basis points.
BofA global economist Ethan Harris fears that by focusing on actual inflation to determine when to stop, central banks may go too far. The bank has lifted its target for the federal funds rate to a range of 4.0-4.25%, with a 75bp hike in September and smaller rises thereafter.
“For investors, this means more pressure on interest rates, more weakness in risk assets and further upside for the super-strong dollar,” said Harris.
“In our view, these trends only turn when markets price the full fury of central bank hikes and we are not quite there yet.”
For now, the dollar has run into some profit taking from a market that is very long the currency after a month of sustained gains.
So rapidly has the dollar risen on the yen that Japanese authorities are becoming increasingly vocal in protesting their currency’s decline, sparking speculation of intervention and putting pressure on the Bank of Japan to moderate its policy of yield curve control.
Japan’s government must take steps as needed to counter excessive declines in the yen, a senior government official said on Sunday, after it hit its weakest level against the dollar in 24 years.
Yet after an early dip, the dollar soon rallied to be up 0.4% at 143.14 yen, though still off last week’s top of 144.99.
The dollar index stood at 108.770, having reached as high as 110.790 last week.
The euro nudged up 0.4% to $1.0080, and away from its recent trough of $0.9865.
Analysts at ANZ noted the dollar over the past month was up roughly 9% against the euro and the Chinese yuan, 12% against the British pound and 19% against the yen.
“The rampant USD is causing strain in developing countries, which are finding imports priced in USD more expensive,” they said in a note.
“With Fed speakers using every opportunity to hammer home a hawkish message and quantitative tightening looming, the USD is not about to dramatically turn.”
The ascent of the dollar combined with high bond yields has been a drag for gold, which was hovering at $1,713 an ounce after hitting a low of $1,690 last week.
Oil prices have also been trending lower amid concerns about a global economic slowdown, though cuts to supply did prompt a 4% bounce on Friday.
On Monday, Brent was down $1.29 at $91.55, while U.S. crude shed $1.28 to $85.51 per barrel.
Referring to the countrywide recent havoc and atrocities, Prime Minister Sheikh Hasina today said that she had an apprehension there might be a strike like this by the BNP-Jamaat clique to pull down the country’s prosperity.
“. . . they (BNP-Jamaat) had wanted not to hold the elections, but we had arranged the elections. After election they thought it wouldn’t be accepted by all, but we’ve also made it acceptable to all and we’ve formed the government. It was an apprehension to me that there would be a strike like this,” she said.
The Premier made this remarks while exchanging views with editors, senior journalists and head of news of various media outlets, organised by Editors’ Guild at her office (PMO).
She mentioned that before and after the election in 2013-14, the BNP-Jmaat clique unleashed arson attacks and killings that left hundreds of people killed and thousands injured.
“It was little bit understandable that this (the activities and movement of the students) was a grave conspiracy,” she said.
Sheikh Hasina said that she didn’t want any incident which might invite any unwanted situation that will invite instability in the country. “It was the target to destroy country’s economy,” she said.
She questioned about the understanding level of the people who supported these mayhem aiming to cripple the country’s advancement and prosperity.
Sheikh Hasina, also the chief of Awami League, said that vested quarter is highly interested to destroy country’s independence and the continuation of the democracy that is going on for long 15 years.
She again said that she never wanted to deploy army personnel in the field while the students were there for the sake of their security.
“While they (students) declared that they are not involved in the on going subversive activities then we called for army,” she said.
The premiers also said that she also didn’t want to impose curfew as the country is going through a democratic environment for 15 years.
She requested the people to resist those who have done this bane for the country. “They have destroyed all the structures have been built for their welfare and livelihood. They have struck all those structures. Who will be the worst sufferer? Of course, mass people. Now it is the responsibility of the mass people to resist these terrorism and militancy,” she said.
The premier called for creating mass awareness against the militancy that has opened in the destructive activities.”If the people don’t become aware then what could we do or how much we could do alone,” she said.
She also mentioned that the targets of the recent mayhem was Awami League, Freedom Fighters and pro-liberation forces.
The Prime Minister said that when all demands of the quota-free movement students were accepted why they gave scope to the militants for doing such heinous activities.
“One day the quota-free movement activists have to answer to the nation, why they gave such opportunity to them for this destruction to the country,” she said.
PM’s Press Secretary Md Nayeemul Islam Khan moderated the programme, while Editors’ Guild president Mozammel Huq Babu delivered welcome address.
Senior journalist Abed Khan, Bangladesh Pratidin editor Nayeem Nizam, DBC Editor-in-Chief and CEO Monzurul Islam, Bhorer Kagoj Editor and Jatiya Press Club general secretary Shyamol Dutta, Daily Jugantor Editor Saiful Alam, Jatiya Press Club president Farida Yasmin, Dhaka Journal chief editor Syed Istiaque Reza, Head of News Nagorik TV Dip Azad, Amader Somoy Editor Mainul Alam, Bangladesh Journal editor Shajahan Sarder, DBC news editor Zayedul Ahsan Pintu, Ashish Saikat of Independent TV, Bangla Tribune editor Zulfiquer Russell, head of News of 71 TV Shakil Ahmed, Energy and Power Editor Mollah Amzad, Head of News of Kings News Nazmul Huq Saikat and Mamunur Rahman Khan of RTV also spoke.
Britain’s inflation rate held steady in June after returning to the Bank of England’s target the previous month, official data showed Wednesday, confounding expectations for another modest slowdown.
The Consumer Prices Index was unchanged at 2.0 percent in June from the same level in May, the Office for National Statistics said in a statement, compared with market forecasts of 1.9 percent.
“Hotel prices rose strongly, while second-hand car costs fell but by less than this time last year,” said ONS chief executive Grant Fitzner.
“However, these were offset by falling clothing prices, with widespread sales driving down their cost.
“Meanwhile, the cost of both raw materials and goods leaving factories fell on the month, though factory gate prices remain above where they were a year ago.”
Analysts said the data could cause the Bank of England to sit tight for a while longer before starting to cut interest rates.
“The chances of an interest rate cut in August have diminished a bit more,” said Paul Dales, chief UK economist at research consultancy Capital Economics.
Last month, the BoE kept its key interest rate at a 16-year high of 5.25 percent, despite slowing inflation in May.
Britain’s newly elected Labour government welcomed news that inflation remained at the BoE’s target level.
“It is welcome that inflation is at target,” said Darren Jones, Chief Secretary to the Treasury, in a statement.
“But we know that for families across Britain prices remain high… (which) is why this government is taking the tough decisions now to fix the foundations” of the UK economy, he said.
Labour, led by new Prime Minister Keir Starmer, has pledged immediate action to grow the economy after the centre-left party won a landslide general election victory to end 14 years of Conservative rule.
Later on Wednesday, King Charles III will read out Labour’s first programme for government in a decade and a half, when the UK parliament formally reopens following the July 4 election.
Elevated interest rates have worsened a UK cost-of-living squeeze because they increase borrowing repayments, thereby cutting disposable incomes and crimping economic activity.
The BoE began a series of rate hikes in late 2021 to combat inflation, which rose after countries emerged from Covid lockdowns and accelerated after the invasion of Ukraine by key oil and gas producer Russia.
China’s economy grew 4.7 percent year-on-year in the second quarter of 2024, official data showed Monday, less than analysts had expected.
“By quarter, the GDP for the first quarter increased by 5.3 percent year on year and for the second quarter 4.7 percent,” Beijing’s National Bureau of Statistics (NBS) said in a statement.
The figures were much lower than the 5.1 percent predicted by analysts polled by Bloomberg.
Retail sales — a key gauge of consumption — also slowed to just two percent in June, the NBS said, down from 3.7 percent in May.
The world’s second-largest economy is grappling with a real estate debt crisis, weakening consumption, an ageing population and trade tensions with Western rivals.
Top officials are meeting in Beijing on Monday for a key plenum, with all eyes on how they might kickstart lacklustre growth.
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