Why did these things happen?
The start of June was marked by a twelfth hike of 25 basis points by the Reserve Bank of Australia (RBA), with the rate landing at an 11-year high of 4.1%. According to its meeting minutes, it was a close call with the Board almost deciding not to hike interest rates, which translated into a pause in July.
The Federal Reserve (the Fed) paused its interest rate hikes in June, for the first time since March 2022. With the rate pause in June and last month’s debt ceiling crisis averted, the focus has returned to the Fed’s “soft landing” goal.
The European Central Bank (ECB) held firm on its inflation battle on 15 June, announcing the interest rate of 3.5%, an increase of 25 basis points. ECB President Christine Lagarde said more hikes are on the cards.
Meanwhile, China’s data for factory activity weakened for a third consecutive month in June. This is in stark contrast to previous market expectations banking on its growth momentum and resilience, which will hit global growth in one way or another. With no clear read on the world’s second largest economy, experts are waiting to see if the government will leverage any stimulus measures to support China’s growth.
By early June, Wall Street dominated the news headlines with investors believing that the S&P 500’s 20% gain from its October 2022 low had marked a new bull market. While there is contention around whether this is a true bull market, investor sentiment revealed that the US economy will avoid a recession, at least this year.
As the days rolled into July, economists remained split on the RBA’s decision to increase or pause rates for the month.
On 4 July, the RBA announced it has left rates on hold at 4.1%, however, Governor Philip Lowe stated that further monetary tightening may be required to bring inflation down to the central bank’s target of under 3.0%. He said global economic data, household spending, and inflation and labour market developments will determine the Board’s calls for August and beyond.
The July decision was the second time that the RBA has kept interest rates on hold since May 2022.