US July CPI result stays high but equity markets bet it will allow a Fed rate cut; US Federal deficit swells; India inflation falls; RBA cuts; UST 10yr at 4.29%; gold and oil soft; NZ$1 = 59.6 USc; TWI-5 = 67.2

Here's our summary of key economic events overnight that affect New Zealand, with news inflation is staying high in the US but retreating in India and Australia.

The US CPI inflation rate remained at 2.7% in July, the same as in June and below forecasts of 2.8%. Still it is worth noting that June's level caused Trump to fire the bearer of that news. But the level has been held anyway. Food prices also were steady at +2.9%. Meanwhile, core inflation, which excludes food and energy, accelerated to a five-month high of 3.1%, compared to 2.9% in June and above forecasts of 3%. The monthly core CPI went up +0.3% as expected, its sharpest rise in six months.

Apparently, importers were still absorbing most of the border tariff taxes.

The new head of the agency responsible for this data (a Heritage Foundation official) has suggested they stop publishing monthly jobs data, especially for jobs, until "errors can be corrected". (Code for, what the White House wants.)

What today's inflation data means for a Fed rate cut is still uncertain - for some. Equity markets are betting this "as expected" result will allow one and their bets are now 90% certain a cut will come on September 18 (NZT). Bond markets are a bit more sceptical. Currency markets remain bearish on the USD.

Record expected corn production in the US, and closing international appetites for politicised trade uncertainties brought a swift fall in corn prices. The same USDA WASDE report says beef prices are rising in lower tariff-induced imports from Brazil and lower domestic production. US milk prices are little-changed but they expect to import more SMP.

The US NFIB Small Business Optimism Index rose in July from June but it still not back to levels of earlier in the year. This latest rise is all about current outcomes rather than future conditions. The uncertainty subcategory was still high and rising.

The US government posted a -US$291 bln budget deficit in July, despite a +US$21 bln boost in border tariff collections from importers, as spending outpaced revenues. The shortfall was US$47 bln larger than a year earlier, with receipts rising +2% to US$338 bln but outlays jumping +10% to a record US$630 bln for the month. The unexpected worsening seems to have been ignored by equity markets who 'liked' the inflation result.

But the bond market is bracing for the impact of an additional US$500 bln in Treasury Bond issuance over the next six months. Benchmark yields rose.

In Canada, a sharper than expected fall in Vancouver multi-unit house building permits, along with a sharper than expected fall in Toronto commercial building, has seen the Canadian building permit levels in June retreat much more sharply than expected. This retreat comes after an unusually strong gain in May however.

In India, CPI inflation is retreating rapidly now, coming in July at only 1.6% from a year ago. In june it rose 2.1%. The July level is almost as low as the all-time low of 1.5% in June eight years ago. In the latest data, food prices deflated -1.8% and this was by far the major reason for the overall easing. The result is now well below the RBI inflation tolerance band of 2-6% so official rate cutting may come into play. But arguing against that is the record weakness on the Indian rupee.

In Germany, ZEW Indicator of Economic Sentiment fell back for the first time in four months, mainly on the disappointing outcomes in the EU-US tariff 'negotiations'. But overall sentiment remain relatively high there in a long term perspective.

In Australia, and in a unanimous decision, the nine member Reserve Bank of Australia Monetary Policy Board has cut its cash rate target by -25 bps to 3.60%, saying a further easing of monetary policy is appropriate after a pause at its last review in July. Most banks announced they would pass it on in full to home loan borrowers. Lower inflation tracks are behind the official rate cut.

The UST 10yr yield is now at 4.29%, up +2 bps from yesterday at this time. The key 2-10 yield curve is very much steeper at +57 bps. Their 1-5 curve is less inverted at -8 bps. And their 3 mth-10yr curve is also less inverted at -2 bps. The Australian 10 year bond yield starts today at 4.26% and unchanged. The China 10 year bond rate is up +2 bps at 1.73%. The NZ Government 10 year bond rate starts today at just under 4.43% and down -1 bp.

Wall Street is up +1.1% in Tuesday trade on the rate cut hopes. Overnight European markets were generally little-changed, except Paris which ended up +0.7%. Tokyo ended its Tuesday session up another strong +2.1% to a new all-time record high. Hong Kong ended up +0.3% and Shanghai was up +0.5%. Singapore however ended down -0.3%. The ASX200 ended its Tuesday session up +0.4%. But the NZX50 dived late in the session to be down -1.2% at the end.

The price of gold will start today at US$3,347/oz, down -US$7 from yesterday.

American oil prices have softened -50 USc to be just under US$63.50/bbl with the international Brent price now at US$66/bbl.

The Kiwi dollar is at just under 59.6 USc and up +20 bps from yesterday. Against the Aussie we are up +10 bps at 91.2 AUc. Against the euro we are down -10 bps at 51 euro cents. That all means our TWI-5 starts today at just on 67.2, unchanged from yesterday.

The bitcoin price started today at US$119,329 and down -0.2% from this time yesterday. Volatility over the past 24 hours has been low at +/-0.7%.

The easiest place to stay up with event risk is by following our Economic Calendar here ».