NEW ZEALAND: Terms Of Trade Recovering But Export Volumes Fall In Q2
NZ saw the second consecutive quarterly improvement in its merchandise terms of trade in Q2. It rose 2.1% q/q to be down 1.7% y/y after a trough of -10.7% y/y in Q4 2023, but there was a sharp deterioration in the services terms of trade of 8.6% q/q and 5.7% y/y. Net exports of goods are likely to weigh on Q2 GDP.
- Goods export prices rose 5.2% q/q driven by an 8% q/q rise in dairy, which is now up 0.3% y/y, the first positive in over a year. Import prices also rose but by less posting a 3.1% q/q increase to be up 0.7% y/y.
- Imported consumer inflation picked up again rising 1.4% q/q to 4% y/y up from 3.3% y/y in Q1 and the recent trough of 2.4% y/y in Q4 2023. While the disinflationary impact from goods prices seems to be past, price increases are still low compared to most of the post-Covid period.
- The services terms of trade fell 8.6% q/q and -5.7% y/y in Q2 due to services import prices rising 6.2% q/q but export prices falling 2.9% q/q.
- NZ Q2 GDP prints on September 19. So far it is looking weak with Q2 retail sales volumes down 1.2% q/q and Q2 merchandise export volumes decreasing 4.3% q/q while imports rose 3.1% q/q signalling a negative contribution from net exports of goods. We don’t have services yet. The RBNZ is forecasting a 0.5% q/q contraction in GDP.
Source: MNI - Market News/Refinitiv
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US: MNI U.S. Weekly Macro Wrap: Weak Payrolls Put Recession Concerns In Focus
- July’s much-weaker-than-expected employment report capped a series of cooling labor market indicators this week that have put the term “recession” firmly into the discourse, by way of triggering the “Sahm Rule”.
- Even before from the weak NFP payroll gains and surprisingly large jump in the unemployment rate, this week's data included softer employment cost data, higher job openings, and the highest continuing jobless claims since November 2021. ·
- Meanwhile, following on from last week's solid Q2 GDP reading, the latest activity data hasn't been encouraging, with a sizeable ISM manufacturing survey miss (lowest since Nov 2023) this week.
- Recession talk may be overwrought, and requires further confirmatory evidence, not least because there may have been some weather-related effects at play in the payrolls report.
- But there is no doubt that the Federal Reserve is under increasing pressure to cut rates as it is seen to be behind the curve, only days after Chair Powell indicated a September rate cut “could be on the table as soon as September”, and the Committee changed its policy statement to acknowledge increasing concern over fulfilling its full employment mandate (MNI meeting review here).
- By the end of last week, markets had priced a first 25bp cut for September, with a total of almost 3 cuts seen by year-end. As this week concludes, markets are leaning toward a 50bp September cut (with the possibility of an inter-meeting move), and 100 to 125bp in total reductions through year end.
- Until the July CPI data on August 14, there won’t be much more evidence to go on. Next week’s data calendar is very light, but a failure by July’s ISM Services index to rebound as expected from June’s contraction will be taken as another signal that recession may be nigh.
USDCAD TECHS: Bullish Trend Structure
- RES 4: 1.3977 High Oct 13, 2022
- RES 3: 1.3951 1.0% 10-dma envelope
- RES 2: 1.3899 High Nov 1 and a key resistance
- RES 1: 1.3889 High Aug 1
- PRICE: 1.3845 @ 15:40 BST Aug 2
- SUP 1: 1.3766 Low Aug 1
- SUP 2: 1.3766 20-day EMA
- SUP 3: 1.3718 50-day EMA
- SUP 4: 1.3367 Low Jul 17
Trend conditions in USDCAD remain bullish and Thursday’s gains reinforce this condition. Recent gains resulted in a break of 1.3792, the Jun 11 high, and more recently, a print above key resistance at 1.3846, the Apr 16 high. The trend condition is overbought, however, the break of 1.3846 strengthens the bull theme and opens 1.3899, the Nov 1 ‘23 high and a key resistance. Firm support lies at 1.3718, the 50-day EMA.
US OUTLOOK/OPINION: Nomura Adds 25bp Fed Cut To 2024, 50bp Sept Cut "Possible"
Another Fed rate call change, this one by Nomura - who are still a little more conservative on the pace and magnitude cuts than some others in the wake of the July employment report. They now see:
- Three consecutive 25bp cuts through end-2024 (previously had seen cuts in just Sept and Dec)
- Four 25bp cuts quarterly in 2025
- "A 50bp rate cut in September is possible, but would only become our base case if evidence of layoffs pick up further or financial conditions tighten unexpectedly. If acute stress materializes, an easing cycle could resemble past recessions, including larger easing increments."
