Global News Summary - 12 to 16 August 2024

United States:

- Economic Growth and Retail Sales: US retail sales rose by 1% in July, significantly exceeding the expected 0.3%. This increase boosted market confidence that the economy may avoid a recession and achieve a “soft landing.” Despite signs of economic resilience, Federal Reserve Bank of Atlanta President Raphael Bostic expressed caution, stating he is “open” to an interest rate cut in September but emphasized the need for more data before making a decision.

- Jobs and Inflation: The inflation rate fell to 2.9% in July, down from 3% in June, while core CPI rose to 3.2%. These figures strengthened the case for the Federal Reserve to consider rate cuts at its September meeting. Treasury yields surged as traders adjusted their expectations, reducing the likelihood of aggressive rate cuts this year.

- Debt Securities: The bond market saw increased activity as recession fears replaced inflation concerns, with bonds proving their worth as a hedge against recent stock market volatility.

United Kingdom:

- Economic Growth: The UK’s GDP grew by 0.6% in the second quarter, following a 0.7% increase in the first quarter. This growth was driven by strong government spending and a robust services sector; signalling continued economic momentum under the new Labour government.

- Jobs and Wage Growth: Wage growth in the UK slowed to 5.4% in June from 5.8% in May, while the unemployment rate unexpectedly fell. This is a positive signal for the Bank of England (BOE) as it suggests cooling labour market conditions, which could reduce inflationary pressures and open the door for potential rate cuts later in the year.

- Inflation rose to 2.2% in July, slightly below expectations, which could influence the BOE’s monetary policy decisions moving forward.

- Housing and Rent: Rental prices in July remained flat month-over-month but increased by 8.6% year-over-year. Meanwhile, annual growth in house prices was flat, reflecting the impact of high borrowing costs and limited housing availability on tenants and mortgage holders.

Eurozone:

- Investor Confidence and Wages: Investor confidence in the Eurozone fell to 17.9, marking the largest drop since the COVID-19 pandemic. This decline was driven by disappointing economic data and global stock market turmoil, increasing the likelihood of another interest rate cut by the European Central Bank (ECB) next month. In Germany, wages are expected to rise by 5.6% in 2024 based on trade deals agreed earlier in the year, raising concerns about inflationary pressures amid the anticipated ECB rate cuts.

Japan:

- Economic Growth: Japan’s GDP grew at an annualized pace of 3.1% in the three months through June, driven by an increase in private consumption. This rebound suggests that the long-sought virtuous cycle of rising incomes leading to increased spending may be taking hold, providing a positive outlook for the Japanese economy.

- Currency and Debt Securities: Retail investors in Japan are betting on further yen appreciation, increasing net yen long positions by 22% following the Bank of Japan’s recent rate hike. This indicates strong confidence in the yen’s rally despite the risks posed by wide yield differentials.

New Zealand:

- **Monetary Policy**: The Reserve Bank of New Zealand (RBNZ) began its easing cycle earlier than expected, citing a drop in inflation expectations and evidence that firms are curbing price increases and negotiating smaller wage hikes. RBNZ Assistant Governor Karen Silk emphasized the central bank’s desire to see continued declines in wage and price setting as they determine the pace of future rate cuts.

Australia:

- **Labor Market**: Australia’s employment surged by 58,200 jobs in July, driven primarily by full-time positions, significantly exceeding the forecasted 20,000 gain. Despite the increase in employment, the unemployment rate increased to 4.2% as the participation rate hit a record high of 67.1%, highlighting the labour market’s resilience despite elevated interest rates.

- Monetary Policy: Reserve Bank of Australia (RBA) Deputy Governor Michele Bullock indicated that the central bank is not yet close to easing monetary policy, noting that inflation remains persistent and is not expected to return to the target range until late next year.

China:

- Housing Market: New-home prices in 70 cities, excluding state-subsidized housing, fell by 0.65% in July, slightly better than the 0.67% drop in June. Existing home values also declined by 0.8%. This easing in the housing market is expected to provide some relief for China’s economy, where officials are targeting 5% growth for the year.

Artificial Intelligence (AI):

- Corporate Developments: Taiwan Semiconductor Manufacturing Co. (TSMC) reported a 45% revenue increase in July, reflecting strong demand for AI chips. Radical Ventures, a venture capital firm, raised nearly $800 million to create the largest AI-focused growth-stage fund. Musk’s AI start-up xAI also released a new chatbot claiming to match the performance of leading AI models from OpenAI, Google, and Anthropic. SoftBank also engaged in talks with Intel about producing an AI chip to compete with Nvidia, though the plan did not progress due to Intel’s inability to meet SoftBank’s requirements.