Last week’s key insights revolve around the Westpac-MI Consumer Sentiment Survey, indicating a 1.1% decrease in the headline index to 82.7. This decline reflects ongoing household pessimism due to concerns about inflation and potential interest rate hikes. Notably, Westpac-MI Mortgage Rate Expectations have spiked by 30% in the last three months, marking a significant shift towards a ‘hawkish’ stance not seen in seven years. Consequently, households’ views on their financial situation deteriorated in July, with sub-indices for ‘family finances vs a year ago’ and ‘family finances next 12 months’ dropping by 8.4% and 4.5%, respectively.
On the job front, consumers’ expectations of unemployment decreased by 3.3% in July, suggesting a softening labor market rather than a surge in job losses. Despite this, the unemployment rate remains low, indicating a tight labor market similar to last year. Chief Economist Luci Ellis emphasized the importance of understanding underlying factors and responding appropriately to such labor market dynamics.
Australian housing finance approvals experienced a slight setback in May, with a 1.7% decline following an 11.6% surge over the past three months. This slowdown aligns with expectations of a more moderate housing market heading into next year. Additionally, the latest NAB business survey highlighted subdued business conditions, with weakening forward orders and hiring. However, a slight easing in prices and costs was observed, although official inflation data remains crucial in assessing disinflation trends.
In the US, June saw a 0.1% decrease in headline CPI, leading to a drop in annual inflation from 3.3% to 3.0%. Core inflation remained slightly above the headline figure at 3.3% annually, with core goods prices decreasing by 0.1%. FOMC Chair Powell’s recent comments hinted at a potential openness to rate cuts in the near future, reflecting a shift in the Committee’s stance. Powell’s acknowledgment of the labor market’s balance and its limited inflationary impact suggests a cautious approach to policy adjustments.
Looking ahead, the FOMC is expected to initiate rate cuts in September, with a plan to implement one rate cut per quarter until June 2026. Similarly, the Bank of Korea is evaluating the timing of a rate cut, mirroring a global trend towards easing monetary policy amid economic challenges. In China, consumer prices rose slightly below expectations, while producer prices fell, indicating ongoing challenges in stimulating consumer demand and managing excess capacity.
In the UK, GDP grew by 0.4% in May, driven by a 0.7% increase in consumer-facing services. This growth, supported by robust real wages, allows BoE policymakers flexibility in normalizing policy while addressing sticky services inflation. Overall, global economic indicators point towards a cautious yet proactive approach to navigating market risks and uncertainties in the coming months.