The RBA raises interest rates again. US Fed likely to pause at June meeting

The ISM Services PMI Index in the US showed a decline from 51.9 to 50.3. The ISM report for May adds to concerns about the outlook for the economy. According to analysts, the manufacturing sector is already in recession (seven consecutive ISM values for the manufacturing sector below 50). Given the current situation, it is hard to imagine that employment will be sustainable in the coming months. Skipping a rate hike at the next meeting would allow the US Fed to see more data. But markets doubt that if the Federal Open Market Committee (FOMC) pauses at the June meeting, the Fed can justify resuming a rate hike in July.

The German economy is going through a lot of problems at the moment. Instead of a spring recovery, the forces of recession are returning with renewed power. Production and business activity are declining. With the largest economy on a difficult path, it should come as no surprise that investors are increasingly bearish on the rest of the eurozone. The June overall index for the Eurozone economy fell again to minus 17 points.

Gabriel Makhlouf, head of Ireland’s Central Bank, said the ECB is likely to raise rates at both the June and July meetings, bringing the deposit rate to 3.75% from the current 3.25%.

Oil prices rose at the start of Monday’s trading as traders reacted early in Asian trading to an announcement by Saudi Arabia’s energy minister that the kingdom will cut output by an additional one million barrels a day from next month, while other OPEC+ oil producers will maintain the previously promised production cuts. Analysts at Goldman Sachs said the outcome of the OPEC+ meeting was “moderately bullish” for oil markets and could boost oil prices by $1 to $6 a barrel, depending on how long Saudi Arabia maintains production at 9 million barrels a day.

Asian markets traded mostly higher yesterday. Japan’s Nikkei 225 (JP225) increased by 2.20% for the day, China’s FTSE China A50 (CHA50) lost 0.50%, Hong Kong’s Hang Seng (HK50) ended the day up 0.84%, India’s NIFTY 50 (IND50) was up 0.32%, and Australia’s S&P/ASX 200 (AU200) ended Monday with a 1.00% gain.

Nearly two million visitors came to Japan from abroad in April, compared with fewer than 140,000 a year earlier, according to Japan’s National Tourism Organization. Foreign tourists picking up tickets to Japan are helping the economy climb out of recession thanks to purchasing power, which is also fueling upward pressure on wages and prices in the hotel sector.

On Tuesday, the Reserve Bank of Australia (RBA) unexpectedly raised interest rates by another 0.25% to 4.10%. The RBA also indicated that domestic inflation is still too high and that further policy tightening may be needed this year. Governor Philip Lowe said at a press conference that high prices would do more economic damage than a short-term interest rate hike. He also warned that weak household spending and below-average economic growth are likely on the horizon.