Australia and New Zealand Weekly Prospects
* Once again we have arrived at the quarterly fork in the road that is the Australian inflation data, and the 'will
they, won't they' debate on the likely RBA response. A 0.7%q/q print on the core trimmed mean and weighted median
statistical measures on Wednesday (which, for the first time, will be released simultaneously with the headline data)
should be enough to keep the RBA sidelined next month. Headline inflation will be boosted to 0.9%q/q (from just 0.1% in
Q1) by rising fuel and food prices, and higher rents and house purchase costs. The offset should come from lower import
prices. It would take a core print of at least 0.8% to bring an August rate hike into play. Today's PPI data will be a
tasty apertizer -[ the PPI has as good as nailed the CPI result for the last four quarters.
* Inflation remained at the centre of the economic radar in New Zealand last week. Although headline CPI came in above
expectations in 2Q, markets centered their attention on the reading for nontradables inflation, which printed at an
unexpectedly high 4.1%oya in the June quarter. After considering the inflation report, in addition to other key economic
data that has printed on the firmer side, the forecast now anticipates that the RBNZ will raise the official cash rate
by 25 basis points to a fresh record high of 8.25% on Thursday. Moreover, there is a growing risk of a second tightening
in September.
* Recent financial market developments underscore the risk that an unexpected, sharp tightening in financial conditions
has the potential to slow the global economy in coming months. Barring such a tightening, activity data are sending
mostly positive signals about global growth prospects. The jury is still out on the strength of the US economy after
what is expected to have been a solid second quarter. We remain comfortable with the view that, with the housing market
downturn losing force and gasoline prices moving lower, the US economy will generate growth of 3% or better in coming
quarters. Looking beyond the United States, the latest business surveys and the hard activity data from Europe and Asia
point to continued above-trend growth. Likewise, rising commodity prices continue to support growth in the
commodity-exporting emerging economies.
* The latest data from China deliver a strong message about its own and global growth. The 2Q quarterly advance in real
GDP, estimated to be 15.9% (q/q, saar), was the strongest since the early 1990s, with the exception of the 3Q03 increase
that followed the SARS crisis. China's growth is multifaceted, featuring huge increases in retail sales, fixed-asset
investment, and exports. Moreover, the strength of the June activity indicators suggests that the economy has carried
strong momentum into the current quarter.
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