Weak Chinese inflation points towards weak economic activity

• Europe follows US markets higher.

• Weak Chinese inflation points towards weak economic activity.

• RBNZ dovish pivot sparks sharp NZD decline.

European markets are on the rise in early trade, following on from a US session that saw the S&P 500 and Nasdaq touch fresh highs once again. An appearance from Jerome Powell saw the Fed Chair highlight the dual sided risks associated with cutting rates too late or too early. He noted that the recent cooling in the jobs market had brought it back into balance, highlighting the risk of further weakness beyond this point. While the Fed Governor continues to hold his card close to his chest, markets are confident that we are just two-months from that first rate cut from the FOMC.

Overnight inflation data out of China saw yet another concerning sign for the world’s second largest economy, with annual inflation falling to a three-month low of 0.2%. The rebound seen for USDCNH this morning served to highlight ongoing concerns around the Chinese economy, with traders wondering whether the Chinese will be pushed into fresh stimulus in the coming months. Coming ahead of next week’s policy meeting of the Chinese Communist Party (CCP), we will be watching out for any indication over fresh measures to help boosting domestic demand.

Elsewhere, the NZD has been hit hard after a RBNZ meeting that saw the bank indicate a confidence that inflation would soon return to target. While their May meeting saw the bank discuss the possibility of further rates hikes in the face of elevated inflation pressures, today’s meeting saw the committee remove any such reference to instead focus on the confidence of a move back down to the 1-3% target range this year. This leaves the hawkish RBA as an outlier, with AUDNZD surging into a 21-month high.