ECB and US inflation leading to rate cuts. Australia waits.
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Why is European inflation at a three‑year low and what does it mean for ECB rate cuts?
European inflation now at the lowest level in three years, while shares hit an all-time high on Friday. US inflation also going the right way, slowly, with a more mixed response on the share market. But Australia not so fast. Andrew Hauser has been warning of the assumption that Australia follows the Fed. And Japan, inflation is rising, but so is unemployment and retail demand. And China still busy going nowhere, and housing debt has a lot to do with that. And it's a busy week. It's Monday, it's the second of September 2024. It's the morning call from Nab. Good morning. A busy week, but it starts with the US on holiday today. But last week, well, bond yields were markedly higher over the week, so ten year treasury is up over four basis points on Friday alone, up ten over the week.
Aussie ten years were up five basis points over the week, but they finished Friday at three point nine six percent. They are now up at four percent on futures. The US dollar was one point one percent stronger on the DXY, which meant most major currencies were down over the week, so the euro lost one point three percent. The pound was down two-thirds of one percent. The Aussie lost 0.4%, finishing the week just below 67.7 US cents. The Kiwi dollar and the Canadian dollar, the only two G10 currencies to climb last week, both around 0.2% higher against that rising mighty US dollar. And of course, it wasn't a good week for the Nasdaq. It finished the week down 0.9%, but the Dow managed to climb 0.9%. The SP was up a quarter percent over.
The ASX 200 was up uh naught point nine percent last week as well, the DAX climbed one and a half percent, the hang sanged over two percent up, the Eurostock six hundred reached five hundred and twenty-five point six five points on Friday. Why do I go to two decimal places? Well, because it beat its previous peak of five hundred and twenty-five point five nine in June. So a record high, but only just uh and a week. Of strong iron ore prices, they were up five percent last week, whilst Brent was down about 0.3%, thanks to a 2.4% fall on Friday, down to just below 77 a barrel now. WTI uh losing one point seven percent last week. So quite a bit to cover. Uh with NABS Taylor Newton in Melbourne this morning.
Let's start with US inflation.
How is the US core PCE inflation holding steady and what does it signal for Fed policy?
The core PCE, year on year, it was two point six percent in June. In July, it was was well, two point six percent. Uh so that was what ex was expected though. Uh actually a slight rise on what was expected, but it's the same as the month before, it basically.
Yeah, that's right. So that on that core measure holding steady on the year on year rate at at two point six percent, up point two percent in the month. It was another month where it was on the on the right side of a point two as well. It was point one six unrounded, and that's, you know, pretty much bang on in in line with with expectations, I I think. And so, you know, once again just saying, you know, that inflation backdrop is looking benign, confirming that signal we got out of the the CPI uh prints uh earlier in the month, um and just, you know, overall saying that the inflation numbers are coming in in a way that, you know, if anything is marginally below uh what was implied by the Fed's uh median forecast, median dot back in back in June.
Uh not spectacularly below, but certainly there is a little bit of room for that 2024 Court PCE forecast to maybe edge a little bit lower. when they um the Fed comes back uh in in the at their September meeting. Um and you know it as we've been talking about for a while, not really much new news here and it's really over to the labor market. The inflation backdrop is coming in broadly benign. It's not quite at target yet. You've got some Fed officials saying that they're still a little bit worried that it's a little bit too elevated and they're not fully confident it'll be back where they want to see it yet. But you know know this data once again consistent with that kind of balance of risks, very much shifting away from where inflation is is running and towards those kind of downside concerns on on the labour market.
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Chapters
4 chapters
1
Why is European inflation at a three‑year low and what does it mean for ECB rate cuts?
0:01–2:07
2
How is the US core PCE inflation holding steady and what does it signal for Fed policy?
2:07–10:00
3
What are the implications of the latest US labor‑market data for the Fed’s September meeting?
10:00–17:28
4
Why does RBA member Andrew Hauser say Australia should not follow the Fed’s rate‑cut path?
17:28–17:37