July 17, 2018

Orbex, Market Review - Three main Economic events from Last week

Here are the important economic events from last week that affected the markets significantly.

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This article is originally referred from Orbex Market Review.

The markets were seen trading to a wide range of themes last week.

The U.S. administration once again restarted its threats of imposing fresh tariffs on China’s goods. While the markets were in a risk off mode, calmer nerves prevailed.

In the UK, the shock resignations of the UK’s Chief Brexit negotiator David Davis and the foreign minister, Boris Johnson sent the pound sterling weakening significantly.

The ECB’s meeting minutes were released over the week but did not add any new information for the market participants.

China PPI surges strongly in June

The latest producer prices and consumer prices index data from China showed evidence of building price pressures especially at the factory gate.

Beating estimates of a 4.5%, China’s producer price index was seen rising sharply at a pace of 4.7% in June on an annual basis.

The gains in the producer prices marks a three month consecutive increase in prices at the factory gate.

Contributing to higher price pressure was an increase on commodity prices.

This pushed the input costs higher and is also expected to affect the export sector as well.

Ch ina PPI (June 2018): 4.7% (Source: Tradingeconomics)

China’s consumer price index on the other hand was seen rising at a modest pace of 1.9% on the year ending June.

This was in line with the forecasts. The gains in the CPI came due to higher fuel prices.

The core CPI, which exludes the food and energy prices was seen to be unchanged at 1.9% in the month of June. Food prices were seen rising at a pace of 0.3% on an annual basis.

However, the biggest gains came from an increase in non-food prices.

Non-food prices rose 2.2% on the year which was the same pace of increase seen the month before.

The inflation and PPI data comes at a time when the U.S. administration is seen pursuing tougher trade policies.

China has been the main target with the U.S. administration imposing tariffs on steel and aluminium as well as raising tariffs on other key imports from China.

China has so far retaliated with its own set of tariffs imposed on goods imported from the United States.

However, according to many economists, the trade wars are only expected to hurt the U.S. and Chinese economies.

Investors are seen closely watching the data coming out of China for any upward price pressures from the goods imported from the U.S. as well as China’s duties on these goods.

Bank of Canada hikes interest rates

The Bank of Canada held its monetary policy meeting last week on Wednesday.

As widely expected, the BoC was seen hiking interest rates by 25 basis points bringing Canada’s interest rates from 1.25% to 1.50%.

The central bank’s interest rate decision was a close call as some expected that the rising trade tensions with the U.S. would hold back the BoC from an interest rate hike.

However, the BoC, besides hiking interest rates also gave a hawkish forward guidance.

The BoC said that the Canadian economy could support further rate hikes.

Economists now forecast that the BoC could hike rate one more time for the remainder of this year.

Last week’s rate hike was the fourth increase since the BoC started on its tightening cycle in July 2017.

The central bank also revised its second quarter GDP growth to 2.8%.

This was up from the previous estimates of 2.5% from the April forecasts.

Inflation is also expected to rise in the short term before settling back at the BoC’s 2% inflation target rate by mid next year.

U.S. consumer prices rises to a 6-year high

Consumer prices in the United States were seen rising to a six year high in June on an annual basis.

The data from the U.S. labor department showed that while consumer prices increased 0.1% on the month, it brought the CPI to a six year high of 2.9%.

The gains were seen coming from higher fuel prices as well as a few other sectors.

Excluding the volatile food and energy prices, the core inflation rate was seen rising at an annual pace of 2.3%.

On a month over month basis, core CPI increased 0.2% matching estimates.

The rise in the consumer prices data comes following the producer price index report.

Data showed that producer prices in the U.S. also increased to a six year high, suggesting that the effects of higher prices are likely to be pushed over to the consumers in the coming months.

Original Source: Orbex Market Review

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