Weekly Market Recap

Weekly Market Recap: China’s GDP Disappoints While Global Inflation Accelerate

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A busy data-driven week with big data releases and another CPI round in the United Kingdom, New Zealand and Canada. China seems to face many economic challenges this year as the energy crunch and debt bubble fuel concerns about the economy. The Canadian inflation at multi-year highs, boosting expectation for a sooner policy move. Meanwhile, RBA minutes plays down the rate hike.

New Zealand Inflation at New Highs

Annual inflation increased to 4.9% in the third quarter, Statistics NZ reported. This is the highest inflation rate since the second quarter of 2011 and above forecasts of 4.1%. On a quarterly basis, inflation increased to 2.2%, the highest since the December 2010 quarter.

Weekly Market Recap - NZD Inflation
New Zealand Annual Inflation

Soaring inflation has put more pressure on the Reserve Bank of New Zealand to rethink its stance on interest rates as prices are nearly 2% over the bank’s target.

The Reserve Bank of New Zealand raised its official cash rate by 25 basis points to 0.50% in October’s meeting, matching market expectations, and marking the first rate hike since June 2014. Members stated that the decision was appropriate to maintain low inflation and support maximum employment. The 25 bp rate hike signals the start of a policy tightening cycle that was expected to begin in August. But the move was delayed by the recent outbreak of the Delta variant and the lockdown in Auckland, the biggest city in New Zealand. 

China’s GDP Disappoints in the Third Quarter

The Chinese economy grew at the slowest pace in a year, pulled back by energy shortages and soaring property crisis. The world’s second-largest economy printed an annual growth of 4.9% in July-to-September period, slower than the 7.9% growth rate in the previous quarter, while market expectations pointed at a 5% growth.

Weekly Market Recap - China GDP
China GDP

The country has been suffering from an energy shortage that is denting factory output due to the power cuts in some regions. Investments in the real estate sector are now falling as concerns that the debt crisis, triggered by Evergrande, is becoming broader with more firms declared they are struggling to pay their debt, weighing on the overall economy.

RBA Reiterates: No Case for Rate Hike Soon

The Reserve Bank of Australis expects the economy to rebound from the Delta variant-related slump, the meeting minutes showed. This view is supported by the accelerating vaccine rate and the reopening of the economy after recent lockdowns.

The Board did acknowledge that higher interest rates may help easing the property market, but such a move would hurdle the process of achieving the goals of monetary policy. Officials have expressed that the bank won’t raise interest rates to control mortgage lending. Instead, they are focused on supporting faster growth and stable inflation between 2-3%.

The RBA held interest rates at a record low of 0.10% during its October meeting, as widely expected, while continuing the purchases of government bonds at a trimmed pace of A$4 billion a week until at least mid-February 2022. Policymakers stated that the timing and pace of the economic rebound in Australia are uncertain and will depend much on the easing of restrictions. 

The board expressed its confidence in the economic conditions, expecting the economy to resume its rebound cycle in December. Also reaffirmed its commitment to keep the supportive monetary conditions and won’t raise rates until inflation sustainably stabilizes within the 2-3% target range, a condition that will not be met before 2024. A view that is not expected to change anytime soon.

Canadian Inflation at 18-year High

The annual inflation rate rose to 4.4% in September from 4.1% in August, exceeding market expectations of 4.3%. This marks the highest inflation rate in Canada since February of 2003. On a monthly basis, inflation stabilized at 0.2% for the second consecutive month, higher than market estimates of only a 0.1% increase.

Weekly Market Recap - CAD Inflation
Canadian Annual Inflation

Gasoline prices were the biggest inflation driver by 32.8% increase compared with September 2020, according to Statistics Canada. Food prices also increased by 3.9% in the past year.

The Bank of Canada will be meeting next week as market participants are curious about the bank’s vision of the latest surge in the inflation rate. The central bank judged the inflationary pressures as transitory, but their persistence and magnitude are uncertain and will be monitored closely.

The BoC governor stated last week that supply chain bottlenecks may cause inflation to take longer to come down than previously expected.

In its September’s meeting, the bank held its overnight interest rate at 0.25% in line with forecasts, and maintained its asset purchases at $2 billion per week, following a $1 billion cut in the previous meeting.

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