Why the Fed wants you out of a job 🤨

PLUS: RBA pauses at the highest rate in over a decade 👀

Jessica called me this morning and said “This is the third day this week you’ve been late for work. Do you know what that means?”

I replied with “That it’s only Wednesday?” 🤷‍♀️

Needless to say she was unimpressed.

Only have a minute? ⏱

Key Takeaways:

  • Australia: After raising interest rates 400 basis points since May last year - the most aggressive tightening cycle in modern history - RBA hit the brakes, deciding to pause and wait to see how their handiwork will affect the economy. 🛑

    • At yesterday’s policy meeting, they decided to leave the cash rate at an 11-year high of 4.10%.

  • Eurozone: EU retail sales are predicted to show a drop of 2.7% from last year. And although the ECB might be celebrating, businesses are not. 😬

    • Expect EURUSD ↓

  • USA: ADP employment change report is predicting that 228,000 jobs were added to the economy in May. That’s following 278,000 in April.

    • Expect EURUSD ↓

  • USA: ISM services PMI releases tomorrow. Things are looking a little brighter for June with a consensus of 51.

    • Expect EURUSD ↓

RBA pauses at the highest rate in over a decade 👀

The RBA has certainly been making waves in recent months. 🌊

After raising interest rates 400 basis points since May last year - the most aggressive tightening cycle in modern history - they've hit the brakes, deciding to pause and wait to see how their handiwork will affect the economy. 🛑

At yesterday’s policy meeting, they decided to leave the cash rate at an 11-year high of 4.10%.

Is this the start of an interest rate decline? 🧐

Not likely. There is a 50-50 chance of another hike to 4.35% in August, followed by another rise in September too!

RBA Governor Philip Lowe said that higher interest rates are beginning to work but still warns that further tightening might be needed to bring inflation down to it’s target range of 2-3%.  

Plus there's all sorts of global pressure coming from the Fed and ECB who are both likely to increase their own rates this month - these changes could put even more strain on an already weak Australian dollar.

The RBA has their work cut out for themselves. 😴

Trade Of The Day 📈

AUDUSD

July 4th, 2023 - 00:30 EST - RBA Interest Rate Decision

Thursday News

Three high-impact news events before lunch. 🥱🥗

Here’s what you’re in for:
(All times in EST)

  • 05:00 — ECB celebrates while EU businesses suffer 🍾

    • Event: Eurozone Retail Sales (YoY) May

    • Major pairs to watch: EURUSD

  • 08:15 — Why the Fed wants you out of a job 🤨

    • Event: US: ADP Employment Change June

    • Major pairs to watch: EURUSD, XAUUSD

  • 10:00 — US consumers left with no other choice 😧

    • Event: US: ISM Services PMI June

    • Major pairs to watch: EURUSD, XAUUSD

ECB celebrates while EU businesses suffer 🍾

Eurozone consumers have no money left to spend after purchasing highly priced essentials like food and gas. 🌯⛽️

And what does this mean?

No more shopping. 🛍

EU retail sales are predicted to show a drop of 2.7% from last year.

Expect EURUSD ↓

And although the ECB might be celebrating, businesses are not. 😬

The effects of lower consumer spending can be devastating for businesses who rely on it. You can expect layoffs and closures of shops and stores if this trend continues.

Plus, businesses can’t plan ahead or invest in new products with all of this economic uncertainty. 🤦🏻

Why is this such good news for the ECB? 🤷‍♀️

Think of it this way:

There’s less demand and more supply. Which means less pricing power for businesses.

You’ll see lower prices at the checkout counter and a decrease in general prices throughout the overall economy; thus reducing inflation. 📉

Which is exactly what the ECB is trying to accomplish.

So really, a drop in retail sales is good news for everyone…unless you own a shop or business. 😕

Why the Fed wants you out of a job 🤨

Experts are already predicting that the Fed will raise interest rates at the end of this month. And tomorrow’s news might seal that fate. 👀

ADP employment change report is predicting that 228,000 jobs were added to the economy in May. That’s following 278,000 in April.

Expect EURUSD ↓

Persistent growth means high pressure on inflation. And that pressure only increases the likelihood that the Fed is going to hike the rates again. 💰

So the Fed wants less people working?

When inflation is this high, yes. 🤷‍♀️

The Fed has a difficult job of trying to balance the economy – too much growth can cause inflation, while too little can lead to recession. ⚖️

One way they try to keep growth from happening too quickly is to reduce the number of jobs in the market.

When there are more jobs, wages go up as businesses compete for employees. When wages go up, so does consumer spending. 🛍

If consumer spending rises and demand is high, prices will follow in that direction. 🏷

Put simply:

Less jobs, less spending, inflation stays under control.

US consumers left with no other choice 😧

The US service sector barely made the cut in May with a score of 50.3. A few percentage points less and we would have seen contraction in this sector for the first time since 2020.

Outside of Covid and a few flukes, this was actually the weakest we’ve seen this sector in over a decade.

Things are looking a little brighter for June with a consensus of 51.

Expect EURUSD ↓

What’s up with the overall decline?

Well, what can you expect after 500 basis points worth of interest rate increases from the Fed since March 2022?

US consumers have to focus on being able to afford basic needs rather than treating themselves. Less trips to the salon, restaurants, and hot yoga. 🧘🏻‍♀️

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