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Global Price Growth Measures Feel The Pressure

Daily Analysis - 30/07/2017

Tepid Inflation Across the Globe Presents Policymakers With Further Challenges

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The FOMC refrained from adjusting policy last week, discussing the slowdown in inflation that has been mirrored in countries like the United Kingdom and Australia while other major economies experience weak price growth momentum.  As a result, no major changes were experienced as the policy outlook becomes increasingly fraught with risks.

Last Week


After hopes for a more hawkish Federal Reserve were dashed amid a breakdown in fundamentals, the latest interest rate decision and data, point to a more uneven outlook for the US economy.  The FOMC opted to leave rates unchanged while striking a more dovish stance.  Balance sheet reduction may begin this fall, however, the likelihood of another rate hike before the end of the year has been notably diminished.  Apart from policy, GDP growth managed to come in-line with expectations of 2.60% during the second quarter.  UK GDP growth was also announced last week, with the comparable figure tapering to 1.70% annualized pace of expansion during the second quarter despite a pickup in the quarterly pace to 0.30% versus the 0.20% recorded during the first quarter.

Moving on to Asia, Japanese unemployment fell to 2.80%, marking the lowest value in 22-years as joblessness continues to decline.  Annualized inflation figures on a core and headline basis remained unchanged at 0.40% for June, staying well below the Bank of Japan’s 2.00% target.  Australia also experienced an inflation disappointment after the figure cooled to 1.90% annualized growth during the second quarter, potentially thwarting efforts by the RBA to tighten policy as price growth falls beneath the 2.00-3.00% target.

 

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The Week Ahead


Employment announcements and central bank decisions are set to dominate the news over the coming sessions.  Kicking off the employment front, the Euro Area is set to report its latest jobless figures, with the rate forecast to fall to 9.20% in June from the 9.30% recorded a month earlier.  New Zealand will also be releasing the unemployment rate which is expected to have dipped modestly to 4.80% during the second quarter.  US nonfarm payrolls and Canadian unemployment will round out the week, with another strong month of job creation expected in the United States.  While the amount of jobs added is projected to decelerate, financial markets are anticipating a dip in the unemployment rate to 4.30%.  The comparable Canadian figure is forecast to remain on hold at 6.50%.

Shifting gears, the Reserve Bank of Australia will be issuing its latest monetary policy decision, with economists predicting no change in interest rates especially amid the pullback in inflation.  Likewise, the upcoming Bank of England decision is unexpected to see any shift in stance after consumer price growth eased.  US inflation figures are likely to mirror the developments in other advanced economies, with approaching PCE figures expected to reflect price growth remaining below the Federal Reserve’s target.

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