Global News Update: 8 July to 12 July 2024

Key point.

Federal Reserve Chairman Powell noted progress in reducing inflation but emphasized the need for more positive data before considering rate cuts. While the job market remains resilient, ongoing inflationary pressures and declining consumer sentiment suggest that the economy is not yet fully stable and that improvement is still tentative.

Here are the details:-

United States

• Economic Growth & Jobs: Nonfarm payrolls increased by 206,000 in June, slightly above expectations of 190,000, but the unemployment rate rose to 4.1%, the highest since late 2021. This suggests a cooling job market despite resilient hiring. The Federal Reserve’s Powell indicated that while inflation is receding, more data is needed before considering rate cuts. Producer Price Index (PPI) data showed higher-than-expected inflation in producer prices, with PPI Final Demand MoM at 0.2% and YoY at 2.6%. The University of Michigan’s consumer sentiment surveys reflected declines, with sentiment at 66.0, down from an expected 68.5.

• Debt Securities: The US is set to apply 25% national security tariffs to certain steel and aluminium imports from Mexico, aiming to curb Chinese metal entering the US via the southern border. The Monthly Budget Statement showed a deficit of $66.0 billion, an improvement from the previous month’s $347.1 billion.

• AI Developments: Nvidia’s rally slowed, with analysts downgrading its stock due to valuation concerns after a significant surge. The company is forecasted to sell $12 billion worth of AI chips in China despite US export controls. Samsung launched foldable phones with enhanced AI features to compete in the growing market. At the same time, Microsoft and Apple stepped down from their observer roles on OpenAI’s board amid increasing regulatory scrutiny.

United Kingdom

• Economic Growth & Jobs: Labour won the General Election, with Keir Starmer becoming the new Prime Minister. The British pound rose to 1.2815 following the news. Shop price inflation fell by 0.2% MoM in June, indicating a sharp easing in the cost-of-living crisis. House prices rose by 0.2% MoM, suggesting market stabilization ahead of expected interest rate cuts from the BOE.

• Debt Securities: The new Chancellor, Rachel Reeves, warned of challenging economic circumstances and instructed a review of previous spending under the Conservatives. BOE economist Huw Pill highlighted the “uncomfortable strength” of key inflation drivers, suggesting that a rate cut may be postponed.

Eurozone

• Economic Growth & Jobs: Eurozone inflation slowed to 2.5% in June. Given the persistent inflation and wage growth, ECB minutes revealed policymakers' doubts about cutting rates. French President Emmanuel Macron called for a broad governing pact following a fractured parliamentary election outcome. Eurozone wages rose 4.2% in June, complicating the ECB’s efforts to cut interest rates.

Japan

• Economic Growth & Jobs: Japan’s base pay increased by 2.5% in May, supporting potential consumption growth and enabling the BOJ to consider raising interest rates. Tokyo Governor Yuriko Koike secured a third term, providing political stability.

China

• Economic Growth & Debt Securities: The PBOC plans to intervene in bond markets to maintain stability, indicating concerns over the current rally pushing borrowing costs to two-decade lows. CPI rose 0.2% YoY in June, while PPI slid 0.8% YoY, highlighting ongoing deflationary pressures.

Australia

• Economic Growth & Inflation: Consumer sentiment dropped by 1.1% MoM in July due to concerns over potential interest-rate increases. The RBA maintained rates at 5.5%, emphasizing the need for ongoing high rates to manage inflation.

New Zealand

• Economic Growth & Jobs: The RBNZ held rates at 5.5%, indicating that while domestically generated price pressures remain strong, inflation persistence is expected to ease over time. Economists expect the central bank to maintain high rates despite signs of a deepening economic downturn.

ESG Developments

• China: For the first time since announcing its major climate neutrality goals in 2020, China did not permit any coal-based steelmaking projects in the first half of 2024. All permitted capacity used electric arc furnaces, a cleaner process running on recycled scrap and electricity.

The week saw significant political and economic developments across major global economies, with mixed economic signals influencing policy decisions. Inflationary pressures persisted in various regions, while political changes in the UK and France added complexity to the economic landscape.