By Michael Every of Rabobank
The Reserve Bank of New Zealand (RBNZ) surprised the market by cutting the OCR by 50bps to 2.50%, surpassing the 25bps expectations but aligning with our forecast. The RBNZ indicated that they are willing to implement further rate reductions if necessary, with our prediction now pointing towards an additional 25bp cut to 2.25% in November. Some of the statements made by the Bank are noteworthy: “Domestic inflationary pressures have continued to moderate as projected, giving the Committee more confidence that inflationary pressures are contained. Global inflation has continued to decline through 2025. Inflation is especially low throughout Asia, and negative in China. Headline inflation in the US has increased, but evidence suggests that pass-through of tariffs to consumer prices has so far been weaker than expected. To date, there is little evidence of a material impact of tariffs on the prices of New Zealand’s imports or exports.” The observations on Asia seem accurate, although food prices should not be overlooked; the situation in the US is debatable, echoing the sentiments of Fed newcomer Miran; and it is worth noting that New Zealand has not imposed any tariffs, making it unlikely for a tariff on their exports to have an inflationary effect.
The European Union has raised steel tariffs to a level of 50%, resembling Trump’s approach, with hopes of persuading the US to lower its rate for EU steel and jointly target China instead. This move indicates a shared industrial agenda between the EU and the US. In the realm of geoeconomics, US lawmakers are advocating for expanded restrictions on chip exports to China, emphasizing tighter coordination with US allies amid concerns about the Trump administration easing tech limitations. The situation in Africa is evolving, with the US allowing preferential tariff access for some African countries to expire, potentially pushing them further into China’s sphere of influence as importers. Furthermore, barter trade is reshaping global commerce, as highlighted by recent reports on China’s exchange of oil and metals from Iran for construction contracts and cars, avoiding the impact of sanctions.
Amid escalating tensions, US-China relations are under scrutiny, with Chinese hackers targeting US law firms, Ukraine expecting to receive Tomahawk missiles, and Brazil’s leftist president fostering a closer relationship with China. Meanwhile, in the Middle East, there are conflicting reports on progress in talks between Israel and Hamas, reflecting a complex diplomatic landscape.
The global economic landscape is further complicated by ongoing political turmoil in France, the UK, and beyond. As ECB President Lagarde advocates for the Euro to become a key global reserve currency, Europe faces various challenges, including political crises, geopolitical tensions, and economic uncertainties. The situation in the UK is also uncertain, with debates on future trade agreements and domestic policies. The need for a comprehensive strategy to address these issues is evident, requiring a nuanced approach to navigate the complex dynamics at play.
Loading recommendations…