Daily Market Digest: RBA Minutes, Inflation numbers from US & UK

The Australian dollar erased some of its previous losses as RBA minutes showed that members were hesitant to cut rates. Meanwhile, inflation data from the UK disappointed while in the US inflation increased at the fastest pace since February 2013

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Today’s Economic events

• RBA releases monetary policy meeting minutes
• Australia new motor vehicle sales m/ -2.50% vs. 2.20% previously
• New Zealand inflation expectations q/q 1.60% vs. 1.60% previously
• Japan revised industrial production m/m 3.80% vs. 3.60%
• Switzerland PPI m/m 0.30% vs. 0.10%
• UK CPI y/y 0.30% vs. 0.50%; Core CPI y/y 1.20% vs. 1.50%
• Canada manufacturing sales m/m -0.90% vs. -0.70%
• US CPI m/m 0.40% vs. 0.30%; Core CPI m/m 0.20% vs. 0.20%
• US building permits m/m 3.60% vs. 5.50%
• US housing starts m/m 6.60% vs. 3.30%2

Coming up

• The US capacity utilization rate
• The US industrial production
• New Zealand GDT price index
• New Zealand PPI q/q

RBA’s meeting minutes sends AUD higher

The meeting minutes from the RBA’s monetary policy decision in early May which led to a 25bps rate cut saw a mixed reaction. The meeting minutes from the RBA released today showed that members were largely divided on cutting rates with some preferring to defer the decision until later. The RBA cut rates by 25bps in May, bringing interest rate to 1.75%, after leaving rates steady for over a year at 2.0%.

According to the minutes, “Members discussed the merits of adjusting policy at this meeting or awaiting further information before acting. On balance, members were persuaded that prospects for sustainable growth in the economy, with inflation returning to target over time, would be improved by easing monetary policy at this meeting.“

The Australian dollar gained on the release as it is likely that expectations for further rate cuts diminish. Economic data from Australia following the RBA rate cut included the trade balance data showed a surplus, indicating that the upcoming GDP numbers could be positive. Unemployment data from Australia is due for release on 19th May, Thursday, which will be the next big fundamental risk with forecasts that the unemployment rate increased to 5.80% in April from 5.70% in March.

New Zealand inflation expectations unchanged

Quarterly inflation expectations released by the Reserve Bank of New Zealand earlier today showed that an unchanged print of 1.60% on a quarter over quarter basis. The inflation expectations survey which measures over the two-year period rose slightly to 1.64% from 1.63% in the previous survey. Inflation expectation for the next twelve months was also better, accelerating to 1.22% from 1.09% in the previous survey. For the next quarter, inflation expectations in New Zealand edge higher to 0.37% from 0.33% previously.

Westpac senior economist Satish Ranchod said that the survey of inflation expectations could be comforting for the central bank. He said, “Inflation expectations have been trending down for several years now. Consequently, today’s relatively stable result will be of some comfort to the RBNZ.” On the impact of the inflation survey results, Ranchod said, “As inflation expectations play a vital role in determining actual inflation, this means the RBNZ still has some work to do to generate a sustained pick-up in inflation.“

UK Inflation weaker than expected

Inflation in the UK edged lower in April after posting a 15-month high in March, underlining the fact that price pressures remain weak. Data from the UK’s Office for National Statistics released earlier today showed UK’s consumer prices rising 0.30% compared with the same month a year ago. Inflation was lower than March’s 0.50% increase. On a month over month basis, headline inflation increased only 0.10%, missing expectations of 0.30% and lower from March’s 0.40% increase. The core CPI excluding food and energy was up 1.20%, lower than March’s 1.50%.

ONS statisticians said that the main reason for the drop in inflation was due to the timing of the Easter holidays which was in end March, earlier than last year. Prices in air fares and clothing fell unlike in March, which saw an increase.

The slip in inflation was however not entirely a surprise and something which the Bank of England was expecting. In its April 14th published BoE meeting minutes, the central bank said, “Twelve-month CPI inflation had been 0.5% in March, roughly in line with Bank staff’s expectation at the time of the February Inflation Report. Both had been boosted by a rise in airfares related to the timing of the Easter holidays, which was likely to unwind in April causing twelve-month inflation to drop back slightly.“

US Consumer prices rise in April

Rising at the fastest pace in more than three years, US consumer price index increased to a seasonally adjusted basis of 0.40% in April, extending the 0.10% gains from March, according to data from the Labor department released earlier today. The month over month increase in CPI marks the largest one-month increase since February of 2013. Excluding the volatile food and energy prices, consumer inflation increased 0.20% in April, a modest increase from 0.10% gains in March and lesser than analyst expectations of a 0.30% increase.

Energy prices jumped 3.40% in the month with an 8.10% increase in gasoline prices. Food prices gained a meager 0.20%. On a year over year basis, CPI increased 1.10% in April up from 0.90% gains in March while core CPI was soft, rising 2.10% slipping from 2.20% in March.