FXTRADING Economic Data Summary (Asia-Pacific | 07/15)

US Inflation Cools Across the Board

US CPI rose 3.5% year-on-year in June, down from 4.2% in May, while monthly CPI fell 0.4%, marking the largest monthly decline since April 2020. Core CPI eased from 2.9% to 2.6% year-on-year and remained unchanged on a monthly basis. The simultaneous moderation in both headline and core inflation suggests that previous price pressures are gradually easing, prompting markets to reassess expectations for further monetary tightening by the Federal Reserve.

The decline in energy prices was the primary driver behind the moderation in inflation. The energy index fell 5.7% month-on-month in June, ending a three-month streak of increases and offsetting higher housing and food costs. Housing prices rose just 0.1% from the previous month, the slowest pace since January 2021, while food prices increased 0.2%, indicating that overall price pressures continued to ease. FXTRADING believes: Softer inflation helps ease market concerns over further Fed rate hikes, but energy prices remain highly uncertain. Should oil prices rise again, the pace of disinflation could slow, leaving the Federal Reserve with reason to remain cautious in the near term.

Australian Consumer Confidence Improves

Australia's Westpac Consumer Sentiment Index rose 4.1% to 83.9 in July, indicating that concerns over further rapid interest rate hikes have eased. However, the index remains within the lowest 10% of survey readings over the past five decades, suggesting consumers are still cautious about the economic outlook and that confidence remains far from a full recovery.

The survey showed that expectations for the economy over the next one and five years improved modestly but remained below long-term averages. Meanwhile, the Unemployment Expectations Index fell 7.1% to 129.9, reflecting improved confidence in the labor market. However, 17% of respondents said they were unable to predict the future path of interest rates, the highest proportion since March 2022. FXTRADING believes: Although consumer sentiment has improved, it remains subdued overall. Unless inflation eases more convincingly, the RBA is likely to continue prioritizing price stability, and stronger sentiment alone is unlikely to alter its tightening bias.

Inflation Pressures Persist in New Zealand

The latest Quarterly Survey of Business Opinion by the New Zealand Institute of Economic Research showed that, after seasonal adjustment, the net proportion of businesses expecting economic conditions to improve rose from 1% to 12%, indicating a recovery in business confidence. However, only a net 1% of firms reported higher business activity, suggesting that operating conditions remain challenging and weak demand continues to weigh on the economy.

The survey also showed that a net 10% of businesses reduced staff numbers, while a further 1% expected to cut jobs over the next three months. In addition, 3% of firms planned to reduce capital expenditure. Meanwhile, more than half of businesses reported rising operating costs, and the proportion of firms able to raise prices increased to 41%, with the construction and retail sectors facing particularly strong cost pressures. Businesses continue to struggle with the dual challenges of weak demand and rising costs. FXTRADING believes: The improvement in confidence appears to be driven more by better expectations than by a broad-based strengthening in economic fundamentals. Persistent cost pressures suggest that inflation risks in New Zealand have not fully subsided, meaning monetary policy is likely to remain cautious.

Japan's Manufacturing Recovery Loses Momentum

Japan's industrial production rose 0.1% month-on-month in May, slowing from April's 0.5% increase. Although production expanded for a second consecutive month, the pace of growth weakened noticeably. By sector, transport equipment output rose 2.8%, chemicals increased 4.6%, and petroleum and coal products climbed 9.1%, indicating continued strength in energy-related industries.

Meanwhile, output of general and business machinery fell 6.0%, electrical machinery and information and communication equipment declined 5.1%, and production machinery dropped 3.5%. On an annual basis, industrial production declined 2.1%, reversing April's 2.0% increase and marking the first year-on-year contraction in nearly six months, highlighting the fragile nature of the manufacturing recovery. FXTRADING believes: Japan's manufacturing sector continues to face headwinds from weaker external demand and persistent cost pressures. Industrial production lacks sustained growth momentum, and the country's economic recovery is likely to remain under pressure in the near term.