Marketmind: Rate hike? Not yet, says New Zealand

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A security guard stands in the main entrance to the Reserve Bank of New Zealand located in central Wellington, New Zealand

A look at the day ahead from Tom Arnold.

New Zealand’s decision on Wednesday to hold fire on a highly-anticipated rate hike is a reminder of the challenges major central banks face in their bid to step away from emergency stimulus while the coronavirus remains a threat to growth.

Reserve Bank of New Zealand policymakers quickly shifted gears after the country was put into a snap COVID-19 lockdown over a handful of new cases.

A hike is still expected before the year-end, lending some support to a kiwi dollar that has taken a beating over the last two sessions.

Investors will also be hoping to get the latest clues on the timing and pace of the U.S. Federal Reserve’s asset purchase tapering meanwhile.

They’ll be poring over the minutes due later on Wednesday of the July 27-28 meeting, when officials declared the recovery on course despite the rise of the Delta variant of the coronavirus.

The readout is likely to be key to the short-term outlook for the greenback and Treasury yields, especially if it confirms more policymakers are leaning towards tapering bond purchase plans by the end of the year.

Of course, economic data since then has muddied the waters.

Strong labour market numbers have spurred a number of policymakers to ramp up talk of an earlier-than-expected start to tapering.

Still, retail sales fell more than expected in July, data showed on Tuesday, suggesting a slowdown in economic growth early in the third quarter.

Fed Chair Jerome Powell said on Tuesday it remained unclear whether the heightened outbreak of the coronavirus Delta variant will have a noticeable impact on the economy.

Key developments that should provide more direction to markets on Wednesday:

– U.S. Federal Reserve releases minutes from July 27-28, 2021 policy meeting – 1800 GMT

– Norway’s sovereign wealth fund presents second-quarter results.

-UK consumer price inflation falls to BoE’s 2% target in July

– U.S. earnings: Robinhood Markets Inc Q2.

– European earnings: TBC Bank Group Q2.

– Inflation data for Slovakia and South Africa released.

-Danish brewer Carlsberg raised its full-year earnings guidance on Wednesday after reporting second-quarter sales above expectations.

(GRAPHIC – New Zealand holds rates but projects hikes as Delta hits: https://fingfx.thomsonreuters.com/gfx/mkt/egvbkkybdpq/Pasted%20image%201629260618984.png)

(Reporting by Tom Arnold; Editing by Dhara Ranasinghe)

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