Economy

The central bank is set to meet next week, but is widely expected to keep rates unchanged at 4.35% after core consumer price index inflation read mildly cooler than expected for the June quarter.The second-quarter trimmed mean CPI data was in line with the RBA’s forecast, and a fall in non-tradables and services inflation presented a greater chance that the central bank will keep rates steady, Benjamin Picton, Senior Strategist at Rabobank said in a social media post.Services inflation in particular was a key point of concern for the RBA, with the central bank having signaled earlier that services still presented upside risks for price pressures. While the second-quarter CPI reading did show an uptick in some inflation- particularly from imports and steady consumer spending, it was unlikely that the RBA will have enough impetus to hike rates further.Still, the central bank is also unlikely to cut interest rates anytime soon, considering that inflation still remains comfortably above the RBA’s 2% to 3% annual target. Rabobank only expects the RBA to begin cutting rates from the second quarter of 2025.  More

BENGALURU (Reuters) – The Reserve Bank of Australia will hold interest rates on Tuesday at near a 13-year high and wait until the first quarter of 2025 before reducing them, according to economists polled by Reuters, as price pressures remain elevated.Inflation unexpectedly rose to a six-month high of 4.0% in May from 3.6% previously, triggering a flurry of speculation in markets that the RBA would raise rates.But after inflation dipped to 3.8% last month, along with weaker-than-expected price pressures across the second quarter, that pricing was wiped out.Still, with inflation well above the central bank’s 2%-3% target range, the RBA will hold the official cash rate at 4.35% this year, according to the July 31-Aug. 1 Reuters poll.All but one of 33 economists surveyed expected the central bank to leave rates unchanged on Aug. 6. The median forecast and majority view put rates on hold through the end of this year, unchanged from the previous poll.In a survey taken before the June 18 meeting, more than 60% of economists had predicted at least one cut before the end of 2024. No one forecast any change to rates at the September meeting in the latest poll.”The Q2 inflation report almost certainly takes August off the table for a potential rate hike from the RBA. We still think the underlying strength in the economy is sufficient that they will have to maintain a bit of a hawkish bias,” said Ben Picton, senior strategist at Rabobank. “Up until (the) inflation report, it was our expectation they would hike rates in 2024. So we think a cut this year is probably a bridge too far. They won’t do that,” Picton said. Among major local banks, ANZ, and NAB predict rates will stay unchanged through 2024, while CBA and Westpac see one cut before the end of this year.Two-thirds of economists polled, 22 of 33, forecast no change to the key rate before 2025. Only 10 saw at least one 25-basis-point cut in the fourth quarter while one forecast it at 4.60%.Market pricing showed a roughly 55% probability of a rate cut by the end of 2024, suggesting the RBA will lag the U.S. Federal Reserve, which is forecast to cut rates twice this year and four times in 2025.”The view was always that the RBA was a reluctant hiker and it simply meant the official cash rate was going to be held higher for a lot longer relative to other developed markets,” said Craig Vardy, head of fixed income at BlackRock (NYSE:BLK) Australasia.”The path forward from here is going to be a very slow burn into 2025 … We’ve got a terminal RBA cash rate at 3.60%. We’ve had that for quite a while, so that tells you three rate cuts and they’re done.”Inflation was forecast to average 3.4% this year and 2.8% in 2025, a separate Reuters poll found. Median forecasts in the latest survey showed the RBA cutting rates by 75 basis points next year, putting the official cash rate at 3.60% by the end of 2025. More

Trade tensions and local government debt risks leave Beijing few alternatives to revving up consumer stimulus in coming years, but vague promises of “incremental measures” look likely to fall short, analysts say.China’s leaders signalled this week that fiscal support for the rest of the year will “focus on consumption”, aiming to boost incomes and social welfare, days after announcing plans to use 150 billion yuan ($20 billion) in government debt to finance trade-ins on consumer goods such as appliances.This marks a departure toward boosting chronically weak domestic demand after decades of reliance on exports and infrastructure spending that helped vault China to the world’s second-biggest economy.Still, the trade-in programme, China’s first debt-funded step to directly support household consumption nationwide, amounts to just 0.12% of gross domestic product. Further consumption stimulus is “plausible next year in the face of potentially stronger external headwinds”, Citi analysts said.The fridges-not-bridges shift is driven by growing unease with China’s trade dominance, which has pushed the United States, Europe and emerging economies from Turkey to Indonesia to raise tariffs and place other barriers on Chinese products.In addition, the authorities are growing wary of debt-funded projects as they increase scrutiny on heavily indebted municipalities. Most of China’s fiscal stimulus still goes into investment, but returns are dwindling and the spending has saddled local governments with $13 trillion in debt.Local governments sold 1.49 trillion yuan ($200 billion) of the special bonds used to fund stimulus in the first half of the year, just 38% of the full-year quota, making China’s fiscal stance unexpectedly tight.”The number of really good projects that produce stable income keeps getting smaller,” an economic adviser to the government said on condition of anonymity.China’s export outlook is likely to keep worsening, especially if Donald Trump returns to the White House, as the U.S. former president and Republican candidate for November’s election has threatened tariffs of up to 60% on all Chinese goods.Yue Su, principal China economist at the Economist Intelligence Unit, estimates that a 10% increase in U.S. import tariffs could cut China’s real economic growth by 0.3-0.4 percentage points next year and in 2026.”The urgency to stimulate the domestic economy is highlighted by increased external pressures, including the potential return of Trump,” she said. “A more decisive domestic-focussed policy and fiscal expansion could mitigate some of these effects.”‘POOR’ RECORD ON CONSUMER STIMULUSChina’s household spending is less than 40% of GDP, some 20 percentage points below the global average.To revive consumption just to its pre-pandemic trendline would require 3 trillion yuan to 8 trillion yuan ($400 billion-$1 trillion) in spending, said Christopher Beddor, deputy China research director at Gavekal Dragonomics estimates, who thinks that much stimulus is unlikely.”The government’s track record of delivering on consumer stimulus is frankly pretty poor,” he said.Xu Hongcai, deputy director of the economic policy commission at the state-backed China Association of Policy Science, said boosting demand sufficiently might need re-allocating 5 trillion yuan from investment projects to consumers.”In the short run, 5 trillion yuan in stimulus would be forceful,” Xu said. “But in the long run, we need to improve the proportion of income of urban and rural residents by 20 percentage points of national income.”($1 = 7.2373 Chinese yuan renminbi) More

(Reuters) – A look at the day ahead in Asian markets. Falling bond yields and the prospect of lower interest rates may have helped fuel investors’ animal spirits and the recent mega rally in world stocks, but it’s a different story when borrowing costs are falling because recession fears are rising.That’s the market landscape investors in Asia wake up to on Friday after disappointing U.S. factory data on Thursday slammed U.S. Treasury yields, Wall Street, and stocks, prompting traders to start betting on a possible 50 basis point rate cut from the Fed next month rather than 25 bps.Figures showing a much larger-than-expected contraction in U.S. manufacturing activity last month followed purchasing managers index data earlier on Thursday that painted a similar picture in Germany, Japan and China.China’s ‘unofficial’ Caixin manufacturing PMI was particularly galling at 49.8, signaling a contraction, compared with a consensus forecast of 51.5 and fairly steady growth.With China’s economy already in the doldrums, renewed weakness in Europe and the U.S. is bad news for global growth. Central bank rate cuts, the latest of which came from the Bank of England on Thursday, may have to be deeper and faster than analysts and policymakers had bargained for.The 10-year U.S. Treasury yield tumbled 13 basis points, its biggest one-day fall this year, and is now below 4.0%. Never mind the great rotation out of Mega Tech into small caps, investors seem to be rotating out of stocks and into the safety of U.S. Treasuries.Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN) and Intel (NASDAQ:INTC) reported earnings after the U.S. close on Thursday and the early signs are investors were not impressed. Intel’s outlook, in particular, was bleak, and shares fell 15% in after-hours trading.Investors in Asia will be hoping for a calmer end to a momentous week, the highlight of which was a rate hike in Japan. As Washington-based economist Phil Suttle puts it: “Judged by the actions of other central banks, these were hardly major moves. Judged by Japanese policy over the past 25 years, these were major moves.”So far this year the Bank of Japan has raised rates twice, ended yield curve control and started QT, Suttle noted.Asia’s economic calendar on Friday is light, with only South Korean inflation likely to be a market-mover. A Reuters poll suggests the annual rate ticked up to 2.50% in July from a one-year low of 2.40% in June.Swaps market pricing points to 35 basis points of easing from the Bank of Korea this year. Barclays economists on Thursday forecast quarter-point rate cuts in October and November. Asia’s corporate calendar on Friday is busier, with earnings reports due from Japan including Nintendo and Sumitomo Mitsui (NYSE:SMFG) Financial Group.Here are key developments that could provide more direction to markets on Friday:- South Korea inflation (July)- Australia producer price inflation (Q2)- U.S. non-farm payrolls (July) More

(Reuters) -Apple said its third-quarter iPhone sales were better than expected and forecast more gains on Thursday as it bets on artificial intelligence to attract buyers, even as its overall China business disappointed. Shares of the company rose nearly 1% in extended trading, outperforming other tech stocks that were broadly lower.Apple (NASDAQ:AAPL) is expected to launch this fall what analysts have called the biggest software upgrade for the iPhone. It includes artificial intelligence features and comes at a time when rivals such as Samsung have been quicker to roll out similar services.Apple said revenue in its fiscal fourth quarter would grow at a level similar to the 4.9% increase it posted in the April-June period, which was better than analysts’ estimates. Sales of iPhone also improved in the third quarter, falling just 0.9% compared with the 2.2% drop analysts expected.Chief Financial Officer Luca Maestri told Reuters in an interview that the iPhone results were better than he had expected three months ago. “The iPhone 15 family has been doing well from the very beginning and still now – we have three quarters of the year behind us. It is performing better than the previous cycle, the iPhone 14.”Still, China – Apple’s third-largest market – remained a drag as sales there declined 6.5%. While that was an improvement from the 8.1% decline in the previous quarter, it was wider than expectations for a drop of 2.4%, according to Visible Alpha.Maestri said China sales fell less than 3%, excluding the effects of foreign exchange and added that he feels good about Apple’s performance in that country, given any softness in its economy. Apple has taken to discounting its iPhones in China to compete with the much cheaper alternative smartphones offered by local competitors such as Huawei. The company in May offered discounts of up to 2,300 yuan ($317) on selected models.AI PUSH Analysts expect a strong upgrade cycle for the iPhone 16 series, likely to be launched in September. The company unveiled a raft of AI products and services it calls Apple Intelligence at its developer conference in June. To operate Apple Intelligence requires at least an iPhone 15 Pro, which may push consumers to upgrade their devices.While some analysts said that some consumers might have purchased the top-end iPhone 15 devices to tap the upcoming Apple Intelligence features, CEO Tim Cook told investors on Thursday it was “too early to tell” if that was driving upgrades.Apple’s AI features have arrived later than offerings by rivals including Samsung Electronics (KS:005930), which has introduced competing devices aimed at hosting AI chatbots. Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL)’s Google are placing huge bets on AI as well.”The company’s future success depends on two factors: keeping AI development costs low and ensuring that new AI-driven features compel price-sensitive consumers to upgrade their devices,” said Emarketer analyst Jacob Bourne.Apple started ramping up research and development spending last year, and Cook has said it has spent more than $100 billion on R&D in the past five years.Maestri told Reuters on Thursday that the company maintains “very good gross margins” despite the sometimes burdensome costs associated with building and running AI applications.Apple splits its AI infrastructure costs between its own data centers and other cloud providers with whom it contracts. On the regulatory front, Apple faces three probes in the European Union related to the Digital Markets Act, which requires large tech companies to ensure a level playing field for rivals and give users more choice. The bloc’s antitrust regulator has accused Apple’s App Store of breaching the DMA.In the United States, the Department of Justice in March accused Apple of monopolizing the smartphone market and driving up prices.Apple’s quarterly earnings per share were $1.40, above Wall Street estimates of $1.35, according to LSEG data.Sales in Apple’s services segment, which includes the App Store and represents Apple Music and TV products, rose 14.1% to $24.21 billion, above analyst expectations of $24.01 billion, according to LSEG data.Mac sales grew 2.5% to $7.01 billion, compared with estimates of $7.02 billion, according to LSEG data.The company’s sales in the iPad segment increased by 23.7% to $7.16 billion, above analyst expectations of $6.61 billion, after Apple launched a new AI-focused iPad Pro and a larger iPad Air in May to revive demand for a product line that had languished for the past two years.In the company’s wearables segment, which represents sales of Apple Watches and AirPods headphones, sales fell 2.3% to $8.10 billion, compared with analyst estimates of $7.79 billion, according to LSEG data.Apple maintained its dividend at 25 cents. In the fiscal second quarter, Apple announced a $110 billion stock buyback. More

Lifesciences firms including lab equipment maker Mettler-Toledo have seen sluggish demand for their instruments used in drug development as cash-strapped biotech clients try to navigate a funding crunch amid high interest rates.Slowing growth in China has further crimped demand for Mettler. In its first-quarter earnings, the company had flagged that it continued to see softness in China.”As expected, market conditions in China remained weak,” said CEO Patrick Kaltenbach.The firm expects third-quarter adjusted profit to be in the range of $9.90 to $10.05 per share, below estimates of $10.36 per share.Its quarterly sales fell 4% to $946.8 million, above analysts’ average estimate of $929.1 million.The Columbus, Ohio-based firm reported adjusted profit for the quarter of $9.65 per share, versus analysts’ expectations of $9.03 per share.Even though the company raised its 2024 adjusted profit to be in the range of $40.20 to $40.50 per share, from its previous range of $39.90 to $40.40 apiece, its midpoint came 5 cents below estimates.Analysts, on average, expect a profit of $40.40 per share, for the year, according to LSEG data.Peer Waters Corp (NYSE:WAT) lowered its annual profit forecast last week, as it anticipates reduced demand for its products and services used in drug development and research. More

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(Reuters) -Snap forecast current-quarter results below expectations on Thursday as the Snapchat owner grapples with stiff competition from larger rivals for advertising dollars in an uncertain economy, sending its shares down 18% after-market.Its biggest competitors – Facebook and Instagram parent Meta Platforms (NASDAQ:META) and Bytedance’s TikTok – far outrank it in terms of scale and established advertiser relationships.”Light Q3 guidance doesn’t help soothe their (investor) concerns. Snap faces tough competition from its much larger rival Meta, which investors rewarded for its strong ad business performance yesterday,” said eMarketer principal analyst Jasmine Enberg.Meta forecast strong revenue for the third quarter and beat June-quarter sales estimates.Considered a more experimental advertising platform, Snap’s revenue growth has come under pressure over the past few quarters as high interest rates prompt enterprise clients in certain sectors to tighten their marketing budgets.”Brand-oriented advertising revenue declined 1% year-over-year, driven by particularly weak demand from certain consumer discretionary verticals including retail, technology, and entertainment,” Snap said in its letter to shareholders.Its stock has been volatile over the past year, and was down about 24% as of Thursday’s close after having fallen roughly 64% from a record high in October 2021.Snap has been investing heavily in its augmented reality platform, providing advertisers with branded AI-generated filters and lenses to attract audiences.The image-messaging platform’s second-quarter revenue of $1.24 billion missed analysts’ estimates of $1.25 billion, according to LSEG data. Image pinboard platform Pinterest (NYSE:PINS) also projected a muted third quarter on Wednesday, dashing investor hopes of a swift rebound in growth.Still, analysts have said Snap is set to benefit from a potential ban on TikTok in the United States as advertisers turn to Snapchat to grab the attention of younger users.Snap forecast a third-quarter revenue range with a midpoint of $1.355 billion, marginally below Wall Street estimates of $1.36 billion. It expects adjusted earnings before interest, taxes, depreciation and amortization between $70 million and $100 million in the third quarter, below expectations of $110.8 million.Daily active users (DAU) of Snapchat grew to 432 million at the end of June, beating estimates of 431.2 million. The Santa Monica, California-based company expects its DAU to reach 441 million in the third quarter. More