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Daily Market Digest: New Zealand inflation, BoE’s Weale speech

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  • The markets were seen recovering following the weekend reports of a failed military coup in Turkey
  • New Zealand second quarter inflation rises 0.40%, less than expected
  • BoE MPC member, Martin Weale signals no urgency to ease monetary policy in August
  • Markets looking at a slow day of trading with no major news flows

Today’s Economic events

  • New Zealand CPI q/q 0.40% vs. 0.50%
  • UK Rightmove HPI m/m -0.90% vs. 0.80% previously
  • MPC Member Weale Speech

Coming Up

  • Canada foreign securities purchases
  • US NAHB housing market index
  • Australia CB leading index

Market Performance

FX Market Performance (12GMT, 18/07/2016)
FX Market Performance (12GMT, 18/07/2016)

Markets digest Turkey’s failed military coup

The Turkish lira plunged over 5.0% on late Friday after reports emerged of a military coup against Turkish president Recep Tayyip Erdogan. The markets at large also briefly slumped but managed to recover after forces, loyal to the Turkish president managed to quash the army’s bid to overthrow the government.

By Monday’s open, the Turkish lira was seen recovering from Friday’s lows as the markets digested the weekend developments. The brief uncertainty also sent jitters across the EU and the US with Turkey, a NATO member and a key ally in the fight against ISIS.

Following the initial reports, the euro slipped against the US dollar and was seen closing Friday’s session below 1.110. The Japanese yen managed to briefly regain some of its declines closing Friday modestly higher 0.26%. USDJPY dropped briefly to just above 105 but managed to open today’s session modestly higher at 105.633. Oil prices also reacted to the news briefly after the Bosphorus Strait, considered to handle about 3% of the global shipments was reopened on Saturday after briefly closing down for several hours on Friday. WTI Crude oil is currently down 1.0% for the day, trading at $45.50 a barrel after rising to $46 on Friday.

Analysts at Rabobank said, “We expect the lira to remain volatile in the coming days and to underperform its CEEMEA peers” and note that Turkish assets remain vulnerable in the short term.

New Zealand Q2 inflation unchanged

The second quarter inflation data from New Zealand showed consumer prices rose 0.40%, data from Statistics New Zealand showed on Monday. This was slightly below forecasts of 0.50% increase during the period and the Q2 inflation rose at the same pace as in Q1 2016. Driving inflation was housing related prices which rose 3.30% on a year over year basis, influenced by higher prices for new homes and rentals for housing. Transport prices contributed to the downside, falling 5.30% on a year over year basis on declining fuel and thus lower air fares.

New Zealand Inflation Q2 – 0.40% q/q
New Zealand Inflation Q2 – 0.40% q/q

Matt Haigh from Statistics New Zealand said, “Petrol prices were 8.1 percent lower than a year ago, despite the increase this quarter as international crude oil prices recovered from their February low. Petrol makes up around 5 percent of the CPI basket.”

Excluding fuel, CPI was up 0.80% on the year while inflation rose 0.20% on a quarter over quarter basis. The New Zealand dollar fell on the news as investors start to re-price into the RBNZ’s August monetary policy meeting. This Thursday, the RBNZ is expected to announce an update of its assessment of the New Zealand economy with many expecting to see the RBNZ cut rates in August to offset the concerns of slowing growth and a high exchange rate.

Analysts at ANZ said, “We’re expecting headline inflation to be relatively low, but for there to be mounting evidence that domestic price pressure is on the rise–which would be consistent with a well-performing economy. However, low headline inflation and the impact of the strong New Zealand dollar are clearly relevant given their (now greater) influence on already-low inflation expectations”

BoE MPC member Martin Weale weighs in on August MPC decision

Bank of England monetary policy committee member Martin Weale spoke today at the Resolution Foundation Monday. In his speech he said that his decision on whether to vote for backing monetary policy easing would depend on the trade-off between weaker growth and higher inflation following the Brexit vote. He said that he doesn’t quite know the impact of the Brexit on UK’s growth and the subsequent rise in inflation he said he added little weight to the view that the BoE not disappoint the markets.

Speaking at the event, he said, “For there to be a case for easing policy I will need to expect weakness in output to be large enough more than to compensate for any overshoot in inflation on the assumption that policy is unchanged in the near term.”

Martin Weale is the second member of the MPC to speak following last week’s monetary policy decision where the Bank of England left interest rates and QE unchanged, much to the market’s surprise. The BoE said that they would further assess the economic data and potentially take a decision in August, with the BoE’s statement saying “most members of the Committee expected monetary policy to be loosened in August.”

BoE’s Andy Haldane, the chief economist spoke on Friday where he said that significant stimulus was needed in August. “If there is greater uncertainty about the effectiveness of tools for easing than tightening,… more should be done to cushion the effects of negative shocks, the like of which we have just seen, than positive ones,” Haldane said.

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