Headlines

*RBNZ hikes another 50bps, sees higher rate peak

*Gold prices flat as investors await cues from Fed minutes

*UK CPI jumps 10.1% vs 9.8% estimates, core 6.2% vs 5.9%

*Asian equity markets mostly higher, Nikkei outperforms

US equities closed mixed as traders weighed strong earnings versus weak economic data. Walmart and Home Depot showed ongoing consumer strength. Economic releases saw a slowdown in the housing market with the rate of new construction falling to its lowest level since early 2021. The broad S&P500 closed up 0.19%. It very nearly touched the 200-day SMA at 4326. The Nasdaq closed lower -0.23%. The Dow traded through its 200-day SMA at 33,889 to finish up 0.71%. Futures are marginally positive.

USD was choppy. A morning bid pushing the DXY close to 107 faded as the dollar closed at 106.47. EUR dropped to 1.0122 before buyers stepped in on intervention stories. USD/JPY climbed back above 134. GBP pushed back above 1.21 with its 50-day SMA at 1.2107. NZD is green on the day after a relatively hawkish RBNZ rate hike and meeting.  AUD is trading just above the all-important 0.70 level.

Event takeaway – RBNZ focuses on inflation, ups rate projections

The RBNZ hiked rates by 50bps as expected by markets. Heading into the meeting, we highlighted guidance and inflation fighting credibility as the two main issues. The policy rate path was lifted from the May meeting. The bank is now signalling that the hiking cycle could be extended into next year. Rates are also seen remaining at the high terminal level well into 2024.

The tone was hawkish. Policymakers are committed to getting prices pressures back to target. This is the goal even if it weighs on economic growth. NZD spiked higher initially but has given back some of its gains. Resistance in NZD/USD is 0.6416 while support is the 50-day SMA at 0.6262.

Chart of the Day – GBP conundrum

We didn’t need to wait until the autumn for double digit inflation in the UK. This morning has seen July headline UK CPI hit 10.1%. The previous print was 9.4%. The core rate jumped above 6%. This is likely to keep the pressure on the BoE to tighten policy further. But it also points to worsening conditions for consumers going forward as the cost-of-living crisis deepens into higher winter energy prices.

We note yesterday saw the sharpest drop in real earnings since records began. Sterling has actually weakened since the release of today’s data. Rising rates and surging prices will hit household activity and consumption boosting recession risks. GBP/USD is battling with the 50-day SMA at 1.2107. Above here is the May low at 1.2155. Solid near-term support is around 1.20.