DirectFX-phone-number-and-phone-image3.gif

p_7_top.jpg

Get a free Quote

Name
Email
Phone
From CCY
To CCY
Amount
Message
please type the characters you see:
(spam filter)
spam control image
 
p_1_top.gif

Apply now

Obligation free account and currency commentary btn_apply_for.gif
p_1_bottom.gif
Browse By Topic

FX News

Most recent FX News:

Read more

Economies of Note - 20th December

Written by Ian Dobbs on December 20th, 2013.      0 comments

1:30pm(NZT)
Australia
There hasn’t been a lot of data released from Australia this week. We did get the Treasury’s mid-year economic and fiscal outlook (MYEFO) on Tuesday and it was a little gloomy. There were lower projections for GDP growth and these have resulted in substantially larger fiscal deficits. Moody’s rating agency came out and said although this would normally be somewhat credit negative, the low starting point for Australian government debt means they are comfortable maintaining the country's Aaa rating. On Wednesday we got comments from RBA Governor Stevens when he appeared before a parliamentary committee. He said the central bank has an open mind on whether further rate cuts are needed and that although they haven’t intervened in the currency, they still might do just that. However he wouldn’t want to signal it ahead of time. With the AUD making fresh cycle lows yesterday in the wake of the Fed announcement, intervention seems very unlikely.


New Zealand
All indications are that the New Zealand economy continues to gain momentum. 2014 is shaping up to be a good one for economic growth. Business confidence data released this week has highlighted that outlook coming in at 64.1 against an expectation of 60.5. Manufacturing confidence hit a 15 year high, services sector confidence is at its best level since 1999, and the agricultural sector is the most confident is has been since 1994. This was followed by GDP data released yesterday. The market was expecting a result of 1.1% for the third quarter, but the actual number came in at 1.4% (3.5% y/y). Growth was driven by the dairy sector that bounced back strongly from last summer's drought. The increase in agriculture has been the largest in more than 25 years as good whether helped boost production. Yesterday we also had the release of the trade balance for November. It came in at a surplus of $183 million, and is the first surplus for a November month since 1991. No surprises for guessing the sector that helped produce that result? There is no data out next week from New Zealand or in fact the week after that.
 

United States
Although the main focus this week was on the Fed meeting and policy statement released yesterday morning, there were some other data points worth noting. Industrial production was much stronger than expected and has now surpassed peak pre-recession levels, taking the index to a six year high. The current account deficit for the third quarter fell to its lowest level in four years, and as a percentage of GDP it’s now at the lowest level since 1998. Housing starts in November were up 22.7% which is the fastest growth since 1990 and the highest level since February 2008. Growth is increasing and unemployment is dropping. This is hardly the environment for the Fed to be running the ‘panic stations’ monetary policy that they have been. That policy being zero interest rates and printing $85bln a month in new money. Even with this as a backdrop, only about 40% of economists expected the Fed to reduce their money printing / asset purchases (QE) at their meeting on Thursday. That is an indication of how poor Fed communication has been for the last six months or so. But at the end of the day that is exactly what the Fed have decided to do. Starting in January they will now only buy $75bln of bonds and mortgage backed securities each month, and they expect to take similar moderate steps at upcoming meetings with purchases ending altogether in late 2014. The Fed was clearly shaken by the market reaction back in June, when the mere suggestion of tapering caused big moves in all markets. So to soften the blow yesterday Ben Bernanke sought to enhance his commitment to keep short term interest rates low for a long time after the bond buying programme ends. He now expects to keep rates low well beyond the 6.5% unemployment threshold previously stated, as long as inflation remains in check. He also sounded warnings on low inflation and stressed further reductions in asset purchases will be data dependant. He will have been happy with the market’s reaction, equities were up over 1%, the USD gained mildly across the board and long term interest rates were only up a touch. The latter two are likely the start of broader trends, I can’t however be convinced that is the case for stocks. We now head into the Christmas trading period with greatly reduced liquidity in most markets. This can lead to quiet trading and small ranges, or the complete opposite! Data next week to draw focus comes in the form of personal spending, durable goods orders, and new home sales.


Europe
Data out of Europe this week has continued to highlight the growing divide between Germany and the rest of the Eurozone. Earlier in the week we got German manufacturing PMI that expanded to 54.2, while the French number contracted to 47.1. German services PMI came in at 54.00, while the French result was 47.4. Tuesday saw the release of German economic sentiment data which had a big jump to 62.00 from 54.6, and then on Wednesday German business climate data made further small gains from already solid levels. At the other end of the spectrum is Greece with its unemployment still running at 27%. This is the biggest problem the ECB faces. The rest of Europe could use a dose of outright quantitative easing from the central bank, but the Germans just won’t allow it, and the German economy doesn’t need the risk of asset bubbles that comes with it. The good news for the ECB was that inflation data this week came in as expected at 0.9%. That is still very weak and the ECB is certainly concerned about the downside risks, but least it looks to have stopped falling for now.


United Kingdom
It has been another good week for data from the United Kingdom. Inflation moderated a touch more to 2.1% from 2.2% previously. A survey by the Confederation of British Industry (CBI) on industrial order expectations came in at its highest level for 18 years. The CBI also surveys current sales volumes and that came in very strong as well. The house price index continues to surge and ratings agency Fitch released upgraded growth forecasts for 2014 and 2015. On Wednesday we got employment data that again beat expectations. The unemployment rate has fallen to 7.4% which is its lowest level since 2009. Average weekly earnings have also grown, picking up by 0.9% in the three months to October compared to a year earlier. This however is still well below the level of inflation at 2.1%, which means in real terms people’s incomes are still falling. Bank of England (BOE) Governor Carney said the recovery has beaten his expectations. He also believes his forward guidance policy is understood by businesses and is having an effect on the real economy. But he would say that wouldn’t he? Either way you look at it, the UK economy is set to perform well in 2014.


Japan
There hasn’t been a lot of data from Japan this week. The Tankan surveys on manufacturing and non-manufacturing both come in on the positive side on Monday, but Wednesday’s trade balance continued to widen. The weak Yen has certainly had an impact here as well as the countries dramatic increase in energy imports with nuclear reactors still offline. The Bank of Japan (BOJ) are looking to expand the industrial loan facilities that are due to expire in March. This programme allows banks to borrow cheaply from the BOJ and lend to certain industries. We have also had a number of comments from official suggesting the BOJ has significant room to boost bond purchases if required. That’s an interesting call considering they are currently buying 70% of all new government debt issued. The BOJ is likely mulling over options to increase stimulus to help counter the sales tax hike set for April.


Canada
The only data out of Canada this week has been manufacturing and wholesale sales figures which both surprised on the strong side. Food sales seemed to be the driving force behind the manufacturing sales number which printed at its best level since May 2012. Bank of Canada (BOC) Governor Steven Poloz was on the wires saying Canadian inflation is lower than we can explain. He also said the CAD weakness won’t help the export sector much, and he expects a soft landing for the housing market. The key data for the week is released tonight in the form of inflation and retail sales. Also Monday’s release of the GDP numbers will offer further insight into developments within the Canadian economy.
 
 

FX Update - It's all about the Fed.

Written by Ian Dobbs on December 17th, 2013.      0 comments

4:00pm(NZT)
Market Overview:

Please note : This will be the last Weekly FX Update for 2013. Commentary will resume the week starting 6 Jan. Have a very happy and safe festive season from all the team at Direct FX.

Activity within the wider market has been sporadic over the last week. In general, lower levels of liquidity can be expected in the run up to the festive season. Changing the dynamic this year is the prospect of one of the more anticipated US Federal Reserve monetary policy announcements in history. The impacts of the Fed’s quantitative easing (QE) program have had a truly global reach. The gradual removal of this unheralded stimulus will be the dominant driver in markets in the coming year. The impacts on the Australasian economies will be both direct and indirect in terms of immediate exchange impact, and the economic impacts of the policy on different trading partners over time. Until the situation becomes more clear, expect periods of increased volatility throughout 2014. Given the shambolic communication from the Fed throughout 2013, the markets will remain appropriately tentative around Fed announcements. Adding further to the mix is the transition of leadership from chairman Bernanke to the incoming leadership of Janet Yellen in early 2014.


Australia
Current sentiment is very negative on the Australian dollar. Even last week’s employment numbers printing at a seven month highs couldn’t halt the currency’s slide. To be fair, that was one of the few pieces of key data recently that has surprised on the strong side. The AUD also wasn’t helped by RBA Governor effectively stating that a rate of 0.8500 to the USD was a realistic level for the currency. Yesterday the Abbott government abandoned its target of returning the budget to surplus in for years. The PM indicated a 2016-17 surplus was unrealistic. It seems likely this year’s deficit will be up around $50 bln. We also had some slightly weaker than expected Chinese manufacturing data yesterday. Although the index is still in expansionary territory at 50.5, this was a three month low. On a brighter note a recent article the UK Telegraph, sighting a Morgan Stanley report, suggests Australia has the potential to become an ‘energy superpower’ by 2017. The article says Australia has a window of opportunity to become a major supplier of liquefied natural gas (LNG) to growing Asian demand. In the last couple of hours the RBA have released the minutes from the previous meeting. They show no major change from the previous meeting and the reaction has been limited.


New Zealand
The New Zealand dollar has been well supported since last week’s RBNZ monetary policy statement. Their slightly higher projected track for interest rates over the next two years highlights the strength in the economy and positive outlook going forward. This was further underlined by data out yesterday. Consumer sentiment came in at 120.1 which is up from 115.4 last month and a four year high for the index. We also had the NZ Performance of Services Index which printed at 56.3. This was a touchdown on the previous reading of 58.2, but is still strong nonetheless and well above the 50 level which denotes expansion in the industry. There was also good news for the film industry with the announcement that the next three Avatar films will be made here in New Zealand. That will translate to an extra $1 - 2 bln spent in the economy over the coming years. Over the next few days we have business confidence and GDP data to draw focus.
 
 
United States
The cold hard reality is that there is only one announcement that matters this week or next. That announcement will come from the Federal Reserve Bank early Thursday morning Australasian time. Are they going to taper or not? The Fed have had a debacle this year with their communication around the issue. In June chairman Ben Bernanke signalled they would start tapering in the coming months and the USD started a strong run. When they didn’t taper in September, the USD gave back all of its gains. The Fed have created all sorts of volatility with this so far and now the markets have no idea whether we will get a yes or no from them this week. So we are likely in for more interesting moves as markets react to the announcement. Quantitative easing (QE) has been a massive policy gamble by the Fed. Its ramifications have been far reaching and will be felt for a long time. How markets react to the eventual withdrawal of relentless cheap money remains to be seen, but there are some big risks ahead. The least of which is not the stock market. Without a shadow of doubt, the QE program has inflated stocks. For much of the past two years the stock market would rally on the back of bad economic data. This is because poor data meant the Fed would keep printing money. The stock market is now well overvalued on just about any measure. Will the Fed pull the trigger before Christmas? We will know the answer in less than 48 hours, and the decision could set the tone for market dynamic for 2014.


Europe
We got a lot of second tier data from Europe last week and most of it was on the soft side. It didn’t seem to impact the Euro much however, as the currency continues to perform better than expected. Last night we got manufacturing and service PMI data which highlighted a growing problem for the Eurozone. The German results we solid, with manufacturing expanding to 54.2 and services declining a touch to 54.0. But the French results showed both sectors declining further into contraction territory with manufacturing coming in at 47.1 and services at 47.4. France is at the core of the Eurozone, but its economic performance is leaving a lot to be desired. This could prove to be a big hurdle for the Euro in 2014. Still to come this week we get German economic sentiment, business climate, and Eurozone inflation. President Draghi was on the wires again last night saying the ECB is aware of the downside risks to inflation and the bank is ready to act. Further action by the ECB is a very likely possibility in the New Year.


United Kingdom
Last week’s data had little impact on the current positive outlook for the UK economy. A slightly weaker trade balance was countered by industrial production that came in a touch better than expected. There were a number of Bank of England (BOE) speakers throughout the week, but none of them added anything new. This week offers a little more for the market to digest. We start off with inflation data tonight. The last few months have seen inflation in the UK moderate and this will be a big relief for consumers and the BOE. There is very little in the way of inflation pressure globally at the moment and another tame result is expected here. Also this week we have the bank of England minutes, unemployment, retail sales, current account, and the final reading of GDP.


Japan
Last week wasn’t a good one for Japanese economic data. The downward revision to GDP was particularly disappointing and this was followed by softer than expected readings from the business activity index, consumer confidence, and core machinery orders.  However, the week did finish on a slightly brighter note. Industrial production release on Friday came in at 1% against and expectation of 0.5%. This marks the third consecutive month of output growth and it certainly looks like the weaker Yen is helping Japanese manufacturing. Yesterday we had the release of the Tankan indexes for manufacturing and non-manufacturing. These both beat expectation which bodes well for the near term outlook. The only other data this week is the trade balance, and this is followed by the Bank of Japan (BOJ) monetary policy statement on Friday.


Canada
Last week was a very quiet one for Canadian data. The only figures released were housing starts and the house price index. Both of which came in a touch under expectation. This week will provide a better insight into the health of the economy with manufacturing sales, wholesale sales, inflation, and retail sales all set for release.


Major Announcements last week:
  • Japanese Q3 GDP +1.1% vs +1.6% expected
  • Chinese Inflation 3.0% vs 3.2% expected
  • UK GDP 3 month estimate. .8%
  • RBNZ leaves monetary policy unchanged
  • Australian Unemployment rate 5.8% as expected
  • US Retail Sales +.7% vs +.6% expected
  • European Manufacturing PMI 52.7 vs 51.9 expected
  • US Manufacturing PMI 54.4 vs 55 expected
 

Economies of Note - 13th December

Written by Ian Dobbs on December 13th, 2013.      0 comments

2:30pm (NZT)
Australia
The key piece of data this week from Australia was employment change released yesterday. The headline increase of 21.0k was much better than expectations that were for a number around 10.0k. Looking into the detail of the report also made pleasant reading, with full time employment up 15.5k and part time up 5.5k. That is significantly better than last month's reading which showed a big swing away from full time work to part time work. Earlier in the week we got business confidence data that was largely unchanged from the previous month. This was followed by consumer sentiment which declined from 1.9% to -4.8%. None of this changes the broader outlook for the Australian economy which is struggling to gain any real momentum. It also won’t do much for government finances which could see the 2013-14 deficit blow out to as much as $45 bln. That is 50% higher than the $30 bln foreshadowed during the federal election and Treasurer Hockey said this week overall debt could end up on the wrong side of $500 bln. There is not much out in the way of data next week with the highlight being minutes from the last RBA meeting on Tuesday.


New Zealand
The week was all about the RBNZ monetary policy statement released yesterday. As universally expected the central bank left the official cash rate unchanged at 2.5% and they continue to signal that rates will start to rise next year. Their new forecasts have them raising rates by a total of 2.25% over the next 2 years, which is slightly more than their previous estimates. This helped to boost the NZD a little in the wake of the release. Although Governor Wheeler said the exchange rate is high and not sustainable in the long run, he fell short of suggesting its appreciation could delay the rate hikes. He repeated that it was too early to judge the effects of the LVR lending restrictions put in place in Oct, and that the RBNZ are serious about containing inflation. Strangely enough, they have actually revised down their projections for inflation in 2014 from 1.9% to 1.5%. Further out however their projections are broadly in line with previous estimates which are that inflation will be over 2% by 2016. To draw focus next week we have consumer sentiment, the current account, business confidence, and GDP data.
 
 
United States
For the most part recent data out of the US has been supportive of the recovery and increased the chance of Fed Quantitative Easing (QE) tapering next week. Last Friday’s employment numbers were certainly strong enough to support the case for a December taper, and these have been backed up by some other good results in the last few days. Wholesale inventories and business inventories have both come in well above expectation and these figures suggest GDP for the fourth quarter will be stronger than previously expected. Retail sales out last night also surprised to the upside coming in at 0.7% against an expectation of 0.6%. Another key hurdle for a December taper was eliminated this week when a cross party government budget deal was reached. This deal will keep the government funded for another two years and means we won’t be having another government shutdown come January 15th.  The key thing the Fed will have to debate in deciding whether or not to scale back asset purchases, is inflation. There is little in way of inflationary pressure at the moment, and the risk are that inflation could even moderate further. It is certainly going to be a close call next week at Wednesday’s Fed meeting and this will provide the focus for global markets over the coming days. There is other data out in the form of inflation, building permits, and existing home sales, but the reality is its all going to be about the Fed.


Europe
There has been little in the way of good news for Europe this week. Data continues to be lacklustre at best. The key figure this week was industrial production and that disappointed to the downside coming in at -1.1% against an expectation of 0.4%. The ECB released their monthly report last night, and in it they have lowered their inflation forecasts. President Draghi repeated the call that they will ensure price stability in both directions. We have had continued comments from other officials all week singing the same tune. That the ECB still has room to act and doesn’t rule out the use of additional steps. The IMF’s Lagarde said European demand remains weak and that Europe needs to improve credit flow. She said the ECB should act to stop inflation falling further and she sees room to relax European budget targets. It seems very likely that unless there is a dramatic turnaround in data over the next six weeks, the ECB will act again in the New Year. The big question is what form this action will take. Another LTRO which possibly links the cheap funding to banks actually lending more, or a move towards negative interest rates on central bank deposits? One thing is for sure, rates are going to stay low in Europe for a very long time. Next week we get manufacturing and service PMI’s, the trade balance, German economic sentiment and German business climate. President Draghi is also set to speak and we get the latest reading on inflation.


United Kingdom
It has been a relatively quiet week for data from the UK. We have seen the trade balance, that was a little worse than expected, and industrial production that was a touch better than expected. Overall there has been little impact on the current positive outlook for the economy. The National Institute of Economic and Social Research (NIESR) produce a monthly estimate of GDP and they suggest it has increased to 0.8% in November from Octobers 0.7%. We get the final reading of the official GDP figure, which is produced quarterly, next Friday. Ahead of that we’ll get readings on inflation and retails sales along with the minutes from the last Bank of England (BOE) monetary policy meeting.


Japan
It hasn’t been a great week for Japan with the majority of data disappointing to the downside. Monday’s soft reading of GDP for the third quarter has highlighted just how fragile the recovery in the economy is. Prime Minister Abe is going to have to deliver quickly on his promise of structural reforms or risk undoing all the good work achieved so far. On Tuesday we got results from a business activity index that printed at -0.7% against an expectation of 0.3%. This was followed on Wednesday by core machinery orders that also disappointed at 0.6% vs 0.8% expected. Next week will hopefully be better when we get the Tankan manufacturing and nonmanufacturing index. These indexes, which are set to be released on Monday, are produced quarterly and are a key indicator of economic health. Early indications are that business are optimistic and this should show through in the results. Later in the week we have the trade balance and the Bank of Japan (BOJ) monetary policy statement.


Canada
There hasn’t been much in the way of key data from Canada this week. We did get housing starts and the new house price index, which both came in a touch under expectation. The housing market is a big focus for the Bank of Canada (BOC) who were on the wires this week suggesting the pick-up in the housing market and debt are temporary. They believe the imbalances will stabilize and gradually unwind. History isn’t exactly littered with housing market bubbles that have gradually unwound, but at least the bank is optimistic. A recent study by Deutsche Bank put Canada at the top the list out of 20 developed countries for the most overvalued property market. The BOC say the risk to the financial system has decreased to “elevated” from “high” since June and they say they will continue to work with other authorities to monitor the market and household debt. Next week we get data on manufacturing and wholesale sales, inflation, and retail sales.
 
 

FX Update - Wild ride a sign of things to come

Written by Ian Dobbs on December 10th, 2013.      0 comments

1:45pm (NZT)
Market Overview:
Sentiment within the wider financial markets has shown signs of confusion over the last week. Demand for risk assets remains in place, whilst the odds of tapering from the US Federal Reserve (Fed) apparently increased in the wake of latest US employment numbers on Friday. These conflicting forces produced strange market dynamics, and these unorthodox reactions can be expected to increase in feature throughout the coming year. Increasing levels of intra-day volatility are likely and this will present as many opportunities as it does headaches for those considering their foreign exchange transactions. Adding to the volatility will be the lower levels of liquidity in the coming weeks as the holiday season approaches.


Australia
There was little to get excited about in last week’s data mix from Australia. A small improvement in retail sales was overshadowed by softer than expected GDP and a deteriorating trade balance. The only positive data has come from offshore in the form of Chinese export growth released over the weekend. The stronger than expected 12.7% year on year growth in November was in large part due to improved demand from developed economies. This gave the Australian dollar a boost in early Monday morning trade. In the last hour we have seen business confidence data and that has held steady at the same level as last month and had little market impact. Later in the week we have consumer sentiment, inflation expectations, and employment data to digest.


New Zealand
There has been very little in the way of key economic data from New Zealand since early last week. We did get manufacturing activity yesterday along with house prices, which were both strong results, but the impact on the market was very limited. Overall the currency has been very well supported and this looks likely to continue heading into the RBNZ’s monetary policy statement Thursday. This is the focus for the week, and all eyes will be on Governor Wheeler to see what clues he gives about the timing of the impending rate hike. There is some suggestion the bank could sight the strong currency as a reason to delay the rate increase, however we’re probably only talking about the difference of a month or two at best. At this point the market has priced in a 25 point hike by the end of March 2014. Anything dramatically away from this and we could get a decent reaction in the currency. In the last few hours we have just seen a release from the RBNZ stating they are cancelling the Loan-to-value (LVR) restrictions on lending for new construction. This is a very good move as the last thing the RBNZ wanted to do is hurt the supply side of the housing equation. The LVR’s were put in place to reduce demand and hopefully cool price appreciation. Any restriction on supply would have been counterproductive.  
 
 
United States
Back in June this year when Ben Bernanke signalled to the markets the Fed were looking to start tapering their quantitative easing (QE) purchases he said the following. “When asset purchases ultimately come to an end, the unemployment rate would likely be in the vicinity of 7%, with solid economic growth supporting further job gains.” On Friday evening the unemployment rate fell to 7% and far from asset purchases coming to an end, the bank hasn’t even started tapering yet! The risks of them starting this month however must have increased dramatically. At the moment it’s probably a 50/50 call. Friday night’s data was in general very strong. Payrolls came in at +203k with small upward revisions to previous data. The unemployment rate fell from 7.2% to 7.0%, a five year low. And consumer sentiment rose dramatically from 75.1 to 82.5. The only question marks in the data came from personal income, which printed at -0.1% against an expectation of 0.3%, and PCE inflation (an indicator of actual inflation) which softened to 0.7% from 0.9% previously. It may have been these last two factors that caused the brutal reversal and subsequent short squeeze seen in many markets in the wake of the release. If inflation is not showing any upside pressure, the Fed may well continue to hold off tapering until the first quarter of next year. Either way, the market’s initial reaction to the data was what you would have expected to strong numbers. The USD rallied and interest rates sold off. But this move only lasted 30 minutes before a sharp turnaround saw most markets move a long way in the opposite direction. By the end of the session the USD was dramatically weaker and interest rates had fallen substantially. This week we get have retail sales and producer prices data to draw focus.


Europe
The highlight for last week was the ECB rate decision and accompanying statement, which surprised the market with its somewhat neutral tone. The fact is the central bank is far from neutral having just cut rates the previous month. There is also continued talk about ‘further room to act’ and this was highlighted by ECB governing council member Jens Wiedmann over the weekend. In an article on Reuters he was quoted as saying “I don’t want to speculate about future monetary policy moves. But rest assured we still have other tools at our disposal. We are ready and able to act.” On Friday evening we had disappointing data on German factory orders, and this was followed last night by German trade balance and industrial production. Both these releases also came in below expectation and a question mark is now starting to appear over future German growth prospects. Germany’s performance has been the only bright spot with the wider Europe largely languishing and prospects for the region will be a lot poorer if German growth falters. Later this week we have industrial production, the ECB monthly report, and couple of speeches from President Draghi himself to draw focus.


United Kingdom
The UK economy continues to perform well. Last week we had solid readings from the manufacturing, construction, and service sectors, along with an upbeat tone from the Bank of England (BOE). On Friday evening we got further solid results from the house price index and consumer inflation expectations. Last night Governor Carney gave a speech in which he maintained his upbeat tone. He also said he was concerned about potential housing market developments, and he wants to avoid the housing market moving at ‘warp speed’. Tonight we get data on manufacturing production, industrial production, and the trade balance. Then on Wednesday we get an estimate of monthly GDP from the National Institute of Economic and Social Research (NIESR). These results should continue to highlight the increasing strength of the economic recovery.


Japan
Last week was a quiet one on the data front for Japan, but this week kicked off with a slew of economic data released yesterday. Unfortunately none of it made very good reading and it won’t take much more data like this to have the Bank of Japan (BOJ) considering further easing measures. The key releases yesterday were firstly the current account for October which showed a deficit of 60 bln Yen. In more than 10 years of data the current account has only been in deficit three times, and two of them have been the last two months. Secondly we got the final reading of third quarter GDP. This was revised down from the previous estimate by a substantial amount. On a year on year basis Japan’s growth is now only 1.1%, compared to the previous reading of 1.9%. Analysts had been expecting a downward revision to around 1.6%, so this was a very disappointing result. Big questions will now be asked about the economy's ability to withstand the planned April sales tax hike, even though the government has announced a stimulus package designed to soften the blow. There is more data to come this week with the tertiary industry activity index, consumer confidence, and core machinery orders all set for release.


Canada
The Bank of Canada (BOC) struck a very cautious tone at their rate meeting last week and rightly in light of some very mixed data recently. Last week’s Ivey PMI data showed a big drop, and as this index is a leading indicator of economic health it does raise some concerns. On the bright side we had employment data out on Friday night and that came in above expectations at 21.6k. The unemployment rate was unchanged at 6.9%. Last night we got housing starts data. Although is pulled back a touch from last month and was a little below expectation, its overall level of 192k is healthy and it seems to have stabilized around here over the last few months. Late this week we have the house price index, capacity utilization, and a speech from Governor Poloz to draw focus.


Major Announcements last week:
  • Chinese Manufacturing PMI 51.4 vs 51.1 expected
  • NZ Terms of Trade 7.5% vs 3.1% expected
  • European Manufacturing PMI 51.6 vs 51.5 expected
  • UK Manufacturing PMI 58.4 vs 56.0 expected
  • US ISM Manufacturing PMI 57.3 vs 55.0 expected
  • RBA leave monetary policy unchanged as expected
  • Australian GDP +.6% vs +.8% expected
  • European GDP -.4% as expected
  • BOC leave monetary policy unchanged as expected
  • BOE leave monetary policy unchanged as expected
  • ECB leave monetary policy unchanged as expected
  • US Unemployment rate 7.0% vs 7.2% expected
  • Chinese Trade Balance 33.8 B vs 21.7B expected
 

Economies of Note - 6th December

Written by Ian Dobbs on December 6th, 2013.      0 comments

3:00pm (NZT)
Australia
There hasn’t been a lot of good news for the Australian economy this week. The best result came from retail sales data on Tuesday that was a touch stronger than expected, but since then there has been little to get excited about. The RBA left rates unchanged and released a statement that was very much in line with what the market was expecting. They did say the Australian dollar was ‘uncomfortably high’ and that a lower level of the exchange rate was needed to achieve balanced growth in the economy. The caused the AUD to come under some renewed pressure initially. But overall the statement was balanced, with the RBA noting some improvement in indicators relating to household and business sentiment. On Wednesday we got a reading on the service sector with the release of the service PMI index. The reading of 48.9 was a small improvement over the previous month, but the index is still in contraction territory. This was followed a couple of hours later by GDP which disappointed at 2.3% against an expectation of 2.6%. The AUD came under further pressure in the wake of this release. I think the Australian Treasurer Joe Hockey summed the situation up best when he said ‘the Australian economy is stuck in second gear.’ Data to watch out for next week will be business confidence, consumer sentiment, and employment change.


New Zealand
The news from New Zealand continues to be positive. Monday’s terms of trade data was incredibly strong and this was reinforced on Tuesday night with the latest Global Dairy Trade (GDT) auction. Prices increased 3.9% from the previous auction and are not far from the record highs set back in October. NZ Finance minister Bill English stated the obvious when he said NZ firms are anticipating interest rate rises in 2014. That has been widely signaled by the RBNZ and the only question is around the timing of hikes. A key factor in this will be how the housing market behaves over the coming months. A recent report from Barfoot and Thompson made interesting reading. Although both the Reserve Bank and the managing director of Barfoot and Thompson have stated it is too early to say what impact the lending restrictions are having, the report seemed to suggest the effects are starting to show. Sales were down in November 7.1% on the previous month, although Oct sales were boosted by the incoming restrictions. Fewer Auckland houses are selling at auction, and houses worth less than 500,000 are selling more slowly. These are positive developments, but not yet enough to affect expectations for a rate in the first quarter of 2014. We have the RBNZ monetary policy statement on Thursday next week and the market will be keenly focused to see if they give any further clues as to the timing of the first rate hike.
 
 
United States
We have seen a mixed bag of data out of the US so far this week. Manufacturing PMI came in strong early in the week, but Wednesday nights non-manufacturing PMI was below expectation and down in last month. The employment component also pulled back sharply, contradicting other indicators that have been pointing to a better employment result. We will get a proper reading on the situation when tonight’s employment report is released. The market is looking for gains in excess of 180k. An hour or so after the employment numbers we get a reading on consumer sentiment which will also be closely watched. The other key piece of data this week was the second reading of third quarter GDP which hit the wires last night. This came in a lot stronger than the market was expecting getting revised up to 3.6%. This would indicate that the recovery in the US is gaining momentum and if this is backed up with good employment numbers tonight then the chance of tapering by the Fed in the next month or two is a real risk. Next week the calendar is a little lighter with the focus being retail sales and producer prices data.


Europe
Data out of Europe this week has done little to change the current outlook. Producer prices declined more than expected as did retail sales. Eurozone services PMI came in a touch stronger than expectation, but it’s impact was very muted. The big focus for the week was the ECB rate decision last night. After last month's surprise cut there was little expectation for further action at this meeting, however the market was somewhat surprised by Draghi’s very ‘neutral’ tone. This saw the Euro gain ground sharply across the board. There were some interesting points to take away from the meeting though, and one was to do with potential for another long term refinancing operation (LTRO). President Draghi seemed to suggest any further stimulus via this channel would have to be targeted better at stimulating lending to the real economy. The previous LTRO’s were successful in strengthening the banks by providing them cheap funding which they largely used to buy government debt. But evidence of flow through to the real economy has been lacking. The ECB may be looking to do something similar to what the Bank of England did with their funding for lending scheme, by tying further cheap funding to actual lending. The recovery in Europe is still very very fragile and Draghi made a point of saying he has broad array of tools at his disposal should further stimulus be needed. Despite his seemingly relaxed tone at last night’s meeting, he is very likely to dip into his ‘toolbox’ next year in an effort to try and underwrite more growth. Next week sees a lot of second tier data out with the highlights being German trade balance and Eurozone industrial production.


United Kingdom
For the most part, data out of the UK this week has continued to show the economy is performing very well. The Bank of England (BOE) themselves, said earlier in the week that the recovery has strengthened. Both manufacturing and construction PMI’s gained ground, with the latter printing at its best level since August 2007. Services PMI however, surprised to the downside by falling from 62.5 to 60.0, although its overall level is still very healthy.  Apart from catching the market off guard, this below forecast result has done little to alter the current outlook. As widely expected, the BOE left rates unchanged at their meeting last night and Mark Carney has made it clear that they won’t even consider raising rates until unemployment falls below 7.0%. So rates will be staying low for some time yet. Next week’s highlight will be manufacturing production data out on Monday. The market will also pay close attention to a speech by governor Carney scheduled for the same day, although it’s hard to see him creating any surprises.


Japan
It has been a quiet week in terms of economic data from Japan, with only capital spending figures on Monday and average cash earnings on Tuesday. Neither of which had a material impact. We are waiting for the release of details around the government's stimulus package. This is being prepared to counter the negative impact of the sales tax hike which is going to kick in come April. Early reports are that the package will total around 5.5 trillion Yen, and this is being viewed as a little disappointing. There has been much debate around whether the Bank of Japan (BOJ) will ease further to help counter the sales tax increase, but board member Sato seemed to pour cold water on that idea this week. He said ‘there is no need to ease preemptively if economic impact of sales tax hike is temporary’. Next week the focus moves to the current account, GDP, manufacturing index, and core machinery orders.


Canada
Canada has seen a couple of data points print stronger than expected this week, with both the trade balance and building permits surprising to the upside. The latter is however extremely volatile and so one month’s number has little overall impact. However, on the downside, the Ivey PMI survey showed a dramatic drop. This index is derived from a broad cross section of the economy and is viewed as a leading indicator of economic health. The fall from 62.8 to 53.7 was very surprising and it does highlight uncertain outlook for the Canadian economy. The Bank of Canada (BOC) themselves this week struck a very cautious tone in their statement after leaving rates unchanged at their policy meeting. They made a point of highlighting the downside risks to inflation, sighting excess supply and heightened competition in the retail sector. They expect both these factor to persist for the foreseeable future. Although the BOC maintained its ‘neutral’ stance, they are clearly worried about the future path of the economy. There isn’t a lot out next week with only housing data, capacity utilization, and a speech by governor Poloz to draw focus.
 

FX Update - A busy week for central banks

Written by Ian Dobbs on December 3rd, 2013.      0 comments

2:00pm (NZT)
Market Overview:
The last week in the financial markets has been marked by somewhat incoherent themes. Some materially better than expected global economic news has been mixed with a number of softer releases. Last week saw significant increases in demand for both the Great British Pound (GBP) and the Euro, while curiously the Australian and New Zealand dollars were matched in their weakness by the Japanese YEN. The start of this week has seen further strength in economic news around the globe, most notably in manufacturing numbers from the major economies. The focus on central banks remains the primary driver of sentiment, with stock markets looking vulnerable following the strong US data. The US Federal Reserve (Fed) now hold one third of all US government debt thanks to their quantitative easing initiatives. The proposition of the Fed reducing these holdings, or even slowing their accumulation, will have far reaching implications throughout the upcoming year.


Australia
The big focus for Australia is the RBA rate statement out later this afternoon. The central bank is very unlikely to cut rates at this meeting, but future cuts have certainly not been ruled out. At the moment the bank is in a ‘wait and see’ mode, happy to see the effects of previous cuts continue to flow into the economy. They will be happy with recent weakness in the AUD and are likely to try and talk the currency down some more. Capital expenditure data last Thursday would have been a pleasant surprise for the RBA, coming in much stronger than expected. Yesterday’s release of building approvals was also better than expected although this is a very volatile number, and its impact is therefore somewhat limited. We also had the release of manufacturing PMI yesterday and this result wasn’t so good. The fall to 47.7 in November from 53.2 in October, takes the index back in contraction after two months of expansion. There is still a lot of work to be done in ‘transitioning’ the Australian economy away from mining investment to other sectors. Overall sentiment was helped by better Chinese manufacturing data out over the weekend and in the last hour we have seen retail sales data that came in a touch above expectation.
There will be more to digest tomorrow with GDP data set for release and Thursday sees trade balance figures hit the wires.


New Zealand
The New Zealand economy continues to improve and is well positioned to perform strongly next year. Recent data has all been positive. Last week we got very strong trade balance and business confidence data, and yesterday saw the release of the NZ terms of trade index for the third quarter. This index showed a substantial gain and is now at its highest level since 1973. An increase in dairy export prices was a major contributor to the positive result. The RBNZ have signalled a cash rate hike is coming next year and with data like this the risk is that the hike comes in the first few months, with meetings scheduled for January and March. Comments from the New Zealand Treasury that they see “pricing pressures starting to emerge” have only reinforced this view. They also said that growth in jobs is a sign the economy’s growth is becoming more sustainable. There is very little on the economic calendar for the rest of the week so the focus will turn to offshore and in particular key US employment data on Friday.
 
 
United States
There is a lot of key data out of the United States this week, which has the potential to dramatically affect sentiment and expectations around potential Fed tapering. We got the first of it last night in the form of the ISM manufacturing index. The reading of 57.3 was a good result and well above the expectation of 55.2. The index is now at its highest level since 2011. Looking deeper into the report showed the employment component was particularly strong. Combining this with the decent fall we saw in weekly jobless claims last Thursday will only serve to increase expectation of a solid payrolls figure when the monthly employment report is released on Friday. Ahead of that we have the trade balance, non-manufacturing ISM, and GDP to digest. The USD has performed well over the last week and should continue to be supported by the data this week.


Europe
There has been little to get excited about in terms of economic data from Europe recently. The Euro struggled onto the weekend weighed on by weak readings from German retail sales and French consumer spending. These overshadowed the small improvement seen in Euro area inflation and the small drop in unemployment from 12.2% to 12.1%. Last night’s Eurozone manufacturing index also showed a small increase to 51.6, but again it has had little effect on the currency. The focus for the week will be the ECB rate decision on Thursday. No change is expected although the bank is likely to reiterate that they still have room to act and a move to negative interest rates is possible. Ahead of that we have service sector PMI and retail sales data to digest.


United Kingdom
The UK Pound has been a solid performer recently, underpinned by positive sentiment and generally supportive economic data. Last night saw two interesting releases that have reinforced the positive growth outlook going forward. The first was manufacturing PMI which jumped to 58.4 against an expectation of 56.0. This is its strongest reading in almost three years, and looking into the detail showed new orders rocketing to a 19 year high. That is a very positive signal for the sector that suggest it can maintain this momentum going forward. The Bank of England (BOE) also released data last night on their Funding For Lending Scheme (FLS) which showed a big increase credit flow in the third quarter. Lending through the scheme has now reached its highest total since the programme was introduced 18 months ago. Most of that lending however, has been going to mortgages with credit to small business actually declining. This is part of the reason the BOE announced last week that mortgage lending under the scheme would be scrapped in February next year. The BOE desperately wants to get credit flowing to small business who have been starved of cash since the financial crisis began. For the UK economy to kick into the next gear the central bank needs to achieve this as well as see wages growth accelerate. There is a lot more key data to come this week with readings on the construction and service sectors, as well as the BOE rate decision and statement on Thursday.


Japan
Late last week saw a raft of Japanese data hit the wires. Much of it was a little disappointing with household spending, industrial production, and unemployment all coming in under expectation. There were a couple of bright spots however, with inflation ticking higher to 0.6% and housing starts showing some strength. Yesterday saw the release of capital spending data which was also somewhat below forecast. BOJ Governor Kuroda was also on the wires saying he wouldn’t hesitate to adjust monetary policy as needed if risks to the economy and prices materialize. Inside sources have apparently said the bank is working on contingency plans for further stimulus, although there is no sense that its implementation is imminent. Governor Kuroda is confident the economy is on course to hit 2% inflation in two years, although many other officials are less optimistic. We should hear plenty more from the BOJ Governor this week with a couple of speeches set for release. Data wise the focus will be on average cash earnings out this afternoon and leading indicators on Friday.  


Canada
After some less than impressive current account data on Thursday last week, the Canadian economy received some good news with Friday’s release of GDP. Expectations were for a a 0.1% result for September but the actual figure came in at 0.3%. This helped to support the CAD heading into the weekend. There will be plenty more to digest this week with the trade balance, the BOC rate statement, building permits, Ivey PMI and unemployment all set for release.


Major Announcements last week:
  • US Consumer Confidence 70.4 vs 72.9 expected
  • UK GDP 1.5% as expected
  • US Durable Goods Sales -2.0% vs -1.9% expected
  • Japanese Inflation +1.1% as previous
  • European Inflation 1.0% vs .9% expected
  • NZ ANZ Business Confidence Index 60.5% vs 53.2% previous
  • Australian Private CAPEX +3.6% vs +1.6% expected
  • Canadian GDP 2.7% vs 2.5% expected
  • Chinese HSBC Manufacturing 50.8 vs 50.5 expected
  • NZ Terms of Trade +7.5% vs 3.1% expected
  • UK Manufacturing 58.4 vs 56.0 expected
  • US Manufacturing 57.3 vs 55.0 expected
 

Economies of note - 29th November

Written by Ian Dobbs on November 29th, 2013.      0 comments

3:30pm (NZT)
Australia
Data from Australia this week has mostly come in on the strong side. However, that hasn’t stopped the Australian dollar coming under continued pressure for much of the past five days. Wednesday’s release of construction work done was a pleasant surprise, coming in well above expectation. That will be pleasing for the RBA who are looking for a transition in economy from mining investment to other sectors. Thursday saw the release of new home sales which showed a decline, but this was completely outweighed by the capital expenditure data for the third quarter. The result of +3.6% verses and expectation of -1.2% gave the currency a much needed boost. This surprise rise in business spending is another sign that the ‘transition’ the RBA are looking for is slowly taking place. Next week is a big one for economic releases with building approvals, retail sales, the RBA rate statement, GDP, and the trade balance, all scheduled to hit the wires.


New Zealand
This week has seen some strong numbers from New Zealand that have served to highlight the positive economic outlook. Wednesday saw the release of the trade balance which came in at -168m. That is the lowest deficit for an October month since the mid-1990s. Imports were higher than expected, but exports massively outperformed with milk powder and forestry notable improvers. The good news continued on Thursday with business confidence data that jumped to the highest level in five years. We also heard from the RBNZ who said they see the LVR lending limits having an effect with high value lending falling by half in October. They did however say it was too early to assess the impact of the restrictions on house prices. Earlier this morning we had building consents data which showed little life printing at -0.6%. Next week will be a quiet one for data with on the overseas trade index of any note.
 

United States
The past week has seen a mixed bag of data from the US, but overall the market has been focusing on the positive. This has seen the USD make solid gains against most other currencies. A soft reading on pending home sales was countered by better than expected building consents data. Consumer confidence and durable goods orders both missed expectations and were down on the previous month. These were not great results but we have also seen a couple of regional surveys, in the form of the Richmond Manufacturing index and the Chicago PMI, which showed solid improvement. Weekly jobless claim also fell again and the current level is consistent with a monthly payrolls figure (to be released next Friday) of around 200k. Taken together, it’s hard to see this data having the sort of impact required to trigger a Fed QE taper in December, but that been said, the USD has certainly performed well over the course of the week. There is plenty of key data to look forward to next week with both manufacturing and non-manufacturing PMI’s, trade balance, GDP, and Friday’s employment report all scheduled for release.


Europe
There hasn’t been a lot of key data out of Europe so far this week. Most of the releases have been second tier stuff such as the German Consumer Climate and German inflation which both came in a touch stronger than expected. These releases have only served to highlight the divergence between the German economy and the rest of Europe. Tonight we get what will arguably be the highlight of the week when the first estimate of Euro-zone inflation is released. Last month’s surprisingly weak result of 0.7% proved to be the trigger for the latest ECB rate cut, and the market is expecting only a small improvement to 0.8% this month. The past two weeks have seen numerous officials all singing the same tune about the possibility of negative interest rates. It’s not uncommon to get central bank officials voicing completely diverging views, so when you hear such a consistent message from a range of sources, it screams of an organised attempt to get a message out. I would not be surprised to see the ECB take rates negative at some stage in the New Year. With Germany refusing any outright attempts at quantitative easing there is little else in the way of extra-ordinary measures the ECB can use. The central bank meets again next week and there should be no surprises at this meeting. Ahead of that we have retails sales data and the revised GDP figures.


United Kingdom
It has been another week of generally supportive releases for the UK economy. Third quarter GDP revised headline data was in line with expectations, but looking into the details showed up better household consumption and that help to support the GBP. The big surprise this week came in the detail of the BOE’s financial stability report. The BOE used that report to announce that they are going to withdraw the funding for lending scheme in relation to mortgage lending. The scheme will still stay in place for business lending. This is a positive sign that the central bank views the economy strong enough to withdraw on of the extra ordinary measures put in place during the crisis. It is also in response to concerns of a housing bubble building in the sector. Governor Carney said this will contribute to stability in the housing market which has been very buoyant, particularly in the south east of the country. Earlier in the week when testifying to a parliamentary committee, BOE officials were very balanced in their views. Ben Broadbent said they are a long way from winding down quantitative easing, and Spencer Dale said the Eurozone weakness will continue to be a drag on the economy. The next step for UK economy is to generate a pickup in domestic demand, but with wage inflation so low that could be hard to come by. There is still plenty slack in UK economy, but they are most definitely heading in the right direction and this is providing support for the GBP. Next week we have PMI surveys for the manufacturing, construction, and service sectors to draw focus, along with the BOE rate decision.


Japan
Retail sales data out of Japan this week was a touch better than expected at +2.3% in October from a year earlier. The government said it is a sign that household consumption may be leading the nation’s economic recovery. That may be partially true, but wages will need to start growing for this trend to continue. In the last couple of hours we have had inflation, industrial production and household spending figures released. The inflation figures continue to be encouraging, but industrial production and household spending both disappointed. This further proves there are still many hurdles to overcome. Next week we get data on capital spending, average earnings, and a speech from governor Kuroda.


Canada
The key data for Canada this week gets released tonight in the form of GDP. The market is expecting a result of 0.1%, which would be a decrease from the previous months 0.3%. Last night we did have two other figures released. The raw materials price index came in below expectation showing a fall of -2.3%, largely due to falling energy prices. And the current account continued to deteriorate to a large deficit of -15.5bln. This last figure is a real concern and is one of the reasons Goldman Sachs has put out a negative prediction for the Canadian dollar in 2014. Next week there is plenty of data to digest with the trade balance, Bank of Canada (BOC) rate statement, building permits, Ivey PMI, and employment change all set for release.
 

FX Update - Tapering expectations continue to drive markets

Written by Ian Dobbs on November 26th, 2013.      0 comments

4:15pm (NZT)
Market Overview:
The global markets continue to be dominated by expectations around the timing of a potential Fed tapering. This was highlighted last week after the release of the Fed minutes seemed to suggest that if the data warrants it, they would start to taper in the coming months. Interest rates moved higher and the USD made gains across the board on the back of this, completely reversing losses seen the previous week after Janet Yellen's testimony. We can expect more of these broad swings over the coming months which have been exaggerated by the Fed’s lack of ability to communicate a consistent tone. Exiting the extraordinary policy of quantitative easing was never going to be easy for the Fed, but they seem determined to make the timing of such a move as unpredictable as possible. All markets will continue to see increasingly wild moves until there is a lot more clarity on the issue.


Australia
The past week has been a tough one for the Australian dollar. There has been little in the way of key economic data released, but that hasn’t stopped the currency putting in one of its worst performances for months. A number of offshore factors have combined over the past week to put the AUD on the back foot. An increased risk of tapering by the US Fed in the coming months, weaker Chinese manufacturing data, a negative IMF report, and talk of intervention by RBA Governor Stevens, have all heaped pressure on the currency. The declining value of the AUD is good news for the economy as tries to transition away from the mining led growth which helped it weather the last five years in relatively good shape. Offshore factors will continue to dominate this week with the only domestic data of note being private capital expenditure data on Thursday.


New Zealand
There has been very little in the way of meaningful economic data out of New Zealand since last week’s stronger than expected Producer Price Index. That data could do little to stop a slide in the NZD against the USD, as the market priced in an increased risk of the Fed tapering quantitative easing purchases in the coming months. A much weaker AUD also helped drag the NZD lower on most crosses. The exception was against the AUD itself, which saw the NZD break to fresh cycle highs on that pairing. This week we have trade balance data, business confidence, and building consents to draw focus.


United States
Last week was dominated by the Fed minutes and the apparent increase in risk around an earlier than expected tapering of asset purchases. Although most still expect this won’t start until around March next year, the minutes suggested that economic data could warrant trimming the pace of purchases in the coming months. This view completely contrasted with the markets take on testimony from incoming Fed Chairman Janet Yellen the previous week, who seemed to support on-going ultra-easy monetary policy. Late last week we also saw a decent fall in weekly unemployment claims, although this was tempered by a softer reading on manufacturing from the Philadelphia region. The latter is considered a leading indicator for the national figure which is due to be released next week. Last night we got data on pending home sales that hit a ten month low, adding to signs of cooling in the housing market. Still to come this week we have building permits, consumer confidence, and durable goods orders which will all be closely watched.


Europe
Recent data from Germany has shown continued improvement which is in stark contrast to the majority of other nations in the region. Last week we got readings on German manufacturing, services, and business climate, which all showed gains. The same could not be said for French data, or the broader Eurozone consumer confidence figures which all declined on the previous month. This disconnect between Germany and the rest of Europe is at the core of struggles within the ECB on further action. Germany flat out won’t allow outright quantitative easing, however it’s looking more and more like the region needs to take drastic measures. At this point the most likely action would be a move to negative interest rates and we have had a number of ECB officials over the past few days suggesting that is on the table. Any such move would not be likely in the very near term however, and would probably play out in the first quarter of 2014. There is a raft of second tier data out this week which will likely continue to highlight the growing disparity between Germany and everyone else.


United Kingdom
There little in the way or market moving data from the United Kingdom over the last few days. Late last week we got figures on public sector net borrowing which showed the on-going recovery is having a positive effect on government finances. Although the drop in borrowing wasn’t as big as had been expected, it is certainly heading in the right direction and should continue to improve as the economy gains strength. Tonight we get testimony from Bank of England (BOE) officials on the inflation and economic outlook in front of a parliamentary committee. Then later in the week we get the second estimate of GDP, the BOE financial stability report, and another speech from BOE Governor Carney.


Japan
There has been little to influence the economic outlook for Japan since the central bank’s Monetary Policy Statement on Thursday last week. In that release Governor Kuroda was generally upbeat about the outlook, noting a pickup in investment by businesses, resilient private consumption, and inflation expectations that appear to be rising. He did however leave the door open for further action if the economy stopped moving in line with projections. Key releases this week come in the form of retail sales, household spending, and inflation data.


Canada
A mixed bag of data at the end of last week did little to influence the outlook for the Canadian economy. Retail sales rose more than expected, printing at +1.0%, but taking out autos, the core number was flat which was a touch worse than forecast. Core inflation data however, came in a touch better than expected at +0.2%. The Canadian Dollar has struggled in the wake of the agreement reached between the US and Iran. That caused oil prices to fall and this has weighed on the CAD do a degree. Later this week we get current account and GDP data to digest.


Major Announcements last week:
  • US Inflation 1.0% as expected
  • US Retail Sales +.4% vs +.1% expected
  • Chinese HSBC Manufacturing Index 50.4 vs 50.9 expected
  • BOJ leaves monetary policy unchanged as expected
  • Canadian Inflation +.7% vs +.9% expected
  • Canadian Retail Sales +1.0% vs +.3% expected
 

Economies of note : 22 Nov 2013

Written by Sam Coxhead on November 22nd, 2013.      0 comments

Australia
There has been limited domestic economic data to provide the lead in the Australian economy this week. However, there has been plenty of noise for the Australian dollar provided by external factors. The US Federal Reserve monetary policy meeting minutes seem to have convinced some that there are increased odds of QE tapering in the coming months. This has undermined demand for the AUD to a certain extent, as it is a beneficiary from the stimulatory strategies. Adding to the downside momentum has been the IMF announcement that it sees the Australian dollar as being overvalued by 10%, and some disappointing numbers from Australia’s largest trading partner, China. In a speech last night, RBA Governor Steven’s further increased the pressure on the AUD. He stated that while the bank was unconvinced about the effectiveness of trying to drive down the exchange rate, he remains “open minded” on currency intervention.  Next week sees a limited amount of top tier economic news due for release in Australia. Of note will be the latest private capital expenditure numbers on Thursday.
 
New Zealand
There has been very little in the way on economic news in New Zealand this week. The latest Global Dairy Trade auction results saw the pricing stablise after the weakness seen since the peak a couple of months ago. The demand for the New Zealand dollar has been undermined this week as the market increased the odds of QE tapering from the Federal Reserve in the coming months. Adding to the softer tone were yesterday’s disappointing Chinese manufacturing numbers. Next week the lead will again come from external factors for the most part, with just the trade balance and the latest ANZ business confidence numbers of offer focus.
 
United States
The focus in the US (and for the rest of the world), continues to come from the Federal Reserve and their apparent approach the the tapering of their quantitative easing program. Wednesday this week saw the release of the previous monetary policy meeting minutes. These have been construed as leaning towards earlier tapering by the market. The reaction has been curious given there was not too much to shed new light. The price action further confirms the edgy nature of market sentiment as we approach 2014. This potential tapering will continue to set the scene in the coming months, and periods of increased volatility can be expected. The economic data, and in particular the employment numbers remain the key. Positive retail sales numbers from Wednesday were joined overnight by mixed results from various manufacturing data series, which further added to the volatility. As the prospect of Fed tapering approaches, in theory the US dollar should see further support as movement higher in the long end interest rates will increase USD demand. Next week will see housing numbers, consumer confidence and durable good sales numbers provide the lead.
 
Europe
It has certainly been a very interesting few weeks for Europe. Confirmation has come that the ECB will consider further stimulatory means such as negative deposit rates as the economy flounders. Ironically, the powerhouse German economy continues to display robust statistics whilst the hapless southern members remain under pressure. Manufacturing numbers last night were as expected,however the services number disappointed. In a speech from ECB President Draghi, he discounted the chances of negative deposit rates in the short term, but leaves them as an option. Now focus turns to tonights consumer confidence number and another speech from ECB President Draghi. Next week looms large for Europe with the important inflation and employment numbers offering the primary focus. It seems like the ECB will remain the primary lead source for the Euro in the coming months and into what will likely be a very interesting environment in 2014.
 
United Kingdom
It has been a relatively quiet week for news in the UK economy. Of primary focus has been the release of the BOE’s minutes from their monetary policy meeting two weeks ago. There was little of new insight within the minutes. Current policy settings remain well placed to further foster the recovery, and all nine votes going for unchanged monetary policy. Overnight saw comments from the BOE head economist Dale on the wires. He re-iterates that interest rates will remain low for an extended period and it will be a number of years before the UK economy gets back to “normal”. Next week sees a busy economic calendar, with further housing, GDP, consumer confidence and money supply numbers to provide the lead. The preliminary Q3 GDP numbers on Wednesday will offer the primary focus. Given the buoyant numbers in the UK of late, it can be expected that further good news will come from this important release.
 
Japan
The main focus for the Japanese economy this week has been yesterday’s unchanged monetary policy decision from the Bank of Japan (BOJ). Whilst leaving monetary policy unchanged Governor Kuroda was more upbeat about the global economy that in his previous statement. With a heavily export reliant economy, this is encouraging, with the most positive signs they see coming from developments in the US, and a lesser extent China. Next week is an important one for the Japanese economy. BOJ monetary policy meeting minutes come ahead of the important monthly inflation numbers, along with retail trade and industrial production data. The BOJ’s massive monetary stimulus programme initiated this year has the sole target of boosting the annual inflation rate to 2.0%, so next Fridays inflation numbers offer the primary focus in the short term.
 
Canada
It has been a quiet week for Canadian economic news this week so far. Just wholesale sales numbers have offered any real focus, and these were a little under expectation upon release. Later on today we see a flurry of important news in the form of the latest inflation and retail sales numbers. With rolling year on year inflation data expected to come in at 1.2%, those numbers should be of limited impact. Retail sales growth of 0.3% for the month is expected, and arguably this will be of more significant impact. This week’s resurgence of the US dollar has aided the CAD, particularly  against its Australasian counterparts. Next week will see the Q3 GDP numbers offer the primary focus when they are released on Friday.
 

FX Update - Established ranges dominate

Written by Ian Dobbs on November 19th, 2013.      0 comments

2:30pm(NZT)
Market Overview:
The presence of on-going US quantitative easing (QE) has continued to provide the primary driver for the wider markets over the last week. Incoming Fed Chair Janet Yellen laid the foundations for on-going stimulus from the Fed at her testimony last week. Since then the US dollar has seen weakness in demand, stock markets have hit all-time record levels, and bond markets remain in demand. This dynamic is the twisted logic of QE, where most asset markets rally in unison, and contrary to pre-QE price action. So the foreign exchange markets continue to trade within their increasing familiar broader ranges, with little in the way of developing trends. Expect this to continue through into the New Year. The prospect 2014 represents is of significant challenges in terms of predicting economic impacts. Expect US Federal Reserve monetary policy to remain of paramount significance. Any unwinding of the massive QE program will likely expose the markets addiction to cheap money and have a de-stabilizing effect across all markets. At the very least, 2014 will prove to be an interesting time to be watching the global financial markets.


Australia
Domestic data out of Australia last week had little overall influence. The currency was driven by broader market moves such as the USD weakness seen on the back of Janet Yellen’s testimony. The start of this week saw positive risk sentiment also boost the currency after Chinese officials laid out a solid reform package. In the last hour we have seen minutes from the last RBA meeting and these show the board has not closed off the chance of another rate cut. That being said, they saw mounting evidence that past cuts are supporting activity and decided it was prudent to hold rates steady. Later in the week we get more comments from Governor Stevens with an on the record speech set for Thursday.
 

New Zealand
There has been very little in the way of market influencing data since last week’s soft retail sales figures. Yesterday saw the release of the Business NZ PSI (Performance of Services Index) which showed strength increasing to 58.2 from 56.4. Although not a market moving piece if data, it does reinforce the view that the NZ economy is performing strongly. The bigger impact on the NZD has come after releases from the Chinese Communist Party meeting show they are planning on undertaking much broader reforms than expected. This has helped boost Asian stock markets and risk assets such as the NZD. We may well have seen some flow of funds into the NZD in order to buy some of the Air NZ shares the government is selling. But the amounts on offer means there won’t be a significant or lasting effect on the currency. Tomorrow we get producer prices data to focus on with credit card spending and visitor arrivals later in the week.
 
 
United States
Recent data from the US has been a touch on the soft side and this has seen the dollar weaken to a degree. At the end of last week we got capacity utilisation, industrial production, and import prices data that all came in under expectation and down on the previous month. It was the same story for manufacturing data out of New York. This data is considered a lead indicator for the wider manufacturing PMI data set for release in a couple of weeks. After Janet Yellen’s testimony last week saw the USD lose substantial ground. The expectation was that we would here a similar tone from a number of Fed speakers last night. This was the case to a degree with the likes of Dudley saying there was not yet enough growth momentum to give the Fed confidence in the labour market outlook. But over all his comments last night were somewhat balanced as he also said he sees some positive signs inflation will rise to target. There will be plenty of data to digest this week with the highlights being inflation, retail sales, and minutes from the last Fed monetary policy meeting.


Europe
Recent data from the Eurozone has done little to improve the economic outlook. The majority of data last week disappointed, printing either at or under expectation. Last night saw the release of current account and trade balance figures which have again done little to support the Euro. The current account came in well below expectation and down on the previous month, and although the trade balance seems to be strong printing at +14bln, it’s only as a result of very poor domestic demand. This means the Eurozone is surviving on exports, which obviously leaves it very exposed should we see a dip in global demand. There has been a lot of attention paid to comments made by ECB chief economist Peter Praet over the weekend. He suggested that even with interest rates toward zero, the central bank still has room for action in the form of quantitative measures. This could be it bond buying (such as the Fed’s QE program), or liquidity (cash) injections. A recent survey shows a large part of the market is expecting further such measures, in the form of an LTRO, in the first half of next year. Key data to watch over the coming days includes German economic sentiment, manufacturing and service PMI’s, consumer confidence, and German business climate.


United Kingdom
Last week saw a mixed bag of data for the UK, but two out of the three key releases undermined support for the GBP. The first was inflation data early in the week which surprised many coming in much softer than expected. Then near the end of the week we got retail sales figures which caught everyone off guard printing at -0.7%. However, between those two soft numbers we had another very good reading on employment and this helped the GBP maintain some composure on the week. Focus this week will come from the release of minutes from the last BOE monetary policy meeting, along with headlines from a number of on the record speeches that are scheduled.  
 

Japan
After a raft of softer than expected data, last week finished on a brighter note with GDP coming in better than expected at +0.5%. There is little domestic data to drive the Yen now until Thursday’s Bank of Japan (BOJ’s) monetary policy statement. Offshore factors are certainly impacting though with broad moves in the USD combining with news from China on plans for reform causing the Yen to swing back and forth.


Canada
Last week was a quiet one for Canada with only two data points out toward the end of the week. Both came in better than expected with the trade balance printing at -0.4% and manufacturing sales improving to +0.6%. We have seen some interesting data, although somewhat historical, on foreign flows into the Canadian stock market in September. It showed a big jump of C$8.36bn and this corresponds with a decent performance of the CAD over that period. There is more to focus on this week with wholesale sales, inflation, retail sales, and a speech from BOC Governor Poloz all set for release.


Major Announcements last week:
  • UK Inflation (core) YoY 2.2% vs 2.5% expected
  • UK Retail Sales (ex-fuel)MoM -.6% vs -.2% expected
  • UK Unemployment rate 7.6% vs 7.7% expected
  • NZ Retail Sales QoQ +.3% vs +.9% expected
  • Japanese GDP Q0Q +.5% vs +.4% expected
  • US Empire State Manufacturing Index +2.21 vs 5.00 expected
  • US Industrial Production MoM -.1% vs +.2% expected
  • China Communist Party 5year plan release sees positive response from markets
 

Economies of note - 15th November

Written by Ian Dobbs on November 15th, 2013.      0 comments

1:45pm(NZT)
Australia
To a large extent, the Australian dollar has been driven this week by offshore factors. There has been domestic data released, but none of it has significantly impacted the market. Business confidence fell from the previous month while consumer sentiment showed improvement. Motor vehicle sales came in below expectation as did the wage price index. This last factor probably influenced inflation expectations which were also very subdued. Next week is another light one with only the leading index and minutes from the last RBA monetary policy meeting set for release.


New Zealand
Wednesday saw the release of the RBNZ Financial Stability Report that caused some volatility in the currency market. The Reserve Bank says the housing market continues to be the main threat to the financial system. They say the household sector has high and rising levels of debt relative to both historical and international norms, and that both households and banks are highly exposed to the housing market. They do see NZ banks in strong shape however, and are expecting to start increasing rates next year as inflation pressures are picking up. The RBNZ says it’s also too early to assess the effectiveness of the new loan-to-value ratios (LVR) introduced recently. The NZD was sold sharply on the initial headlines, but as traders actually read the report the currency recovered. Yesterday saw the release of two other data points. The manufacturing index showed a gradual improvement over last month, and this was followed up by retail sales that were somewhat disappointing. The market was looking for a result of +0.9% but the actual figure printed at a mere +0.3%, helped in large part by motor vehicle sales. Next week is a very quiet one data wise with only producer prices drawing any real focus.
 
 
United States
For the most part, movements in the USD this week have been driven by headlines and comments from incoming Fed Chair Janet Yellen’s testimony before congress. These have combined with subdued data to see the USD weaken a touch. The trade balance, weekly unemployment claims, and nonfarm productivity data all come in on the soft side and below expectations. But the main focus was on testimony from incoming Fed Chairman Yellen, on Thursday and Friday morning. The market has been keen to get a feel for how she will conduct monetary policy, and judging from the reaction in the USD, most feel she won’t be in a hurry to exit the extraordinary measures (quantitative easing-QE) any time soon. To be fair, her comments were broadly balanced and it seems there will be no big change in the way the Fed operates when she takes over in January. Any potential tapering of QE is still very much data dependant, and at this point March seems a likely start date. One recent theme in a number of articles is worth mentioning. And that is that the Fed is allowing Washington to act irresponsibly, because money printing (QE) and asset inflation creates the impression of progress in the economy. The fact is Congress can’t agree on anything meaningful when it comes to tax, spending, or structural reform. Fed money printing is the only thing driving the economy, which is going to make it all the harder for them to stop. Growth needs to be driven from government policy and that seems very unlikely in the US at the moment. Tonight sees the release of industrial production data and next week there is plenty more to digest. The highlights will be retail sales, existing home sales, minutes from the last Fed meeting, and weekly unemployment claims.


Europe
There has been a lot of second tier data out of Europe this week, and most of it has disappointed. The highlights, if you can call them that, were industrial production on Wednesday that come in well under expectation at -0.5%, and Eurozone GDP last night which printed at +0.1% against an expectation of 0.2%. There has been good news with Ireland revealing they will exit the bailout programme without needing a credit line. Ireland’s rescue has certainly been a huge success, on the other side of the coin however, is Greece which is a total disaster. Concerns are growing about the lack of agreement on how to fund the upcoming 5bln euro hole in Greek finances. This week has also seen a lot of comment from ECB officials. The overriding theme has been that the bank still has room to act if necessary. Further rate cuts or extra ordinary measures are on the table should the bank see fit. Next week we get manufacturing data from France and Germany, along with readings on German economic sentiment and business climate.


United Kingdom
It has been an interesting week for the UK economy and as a result the GBP has had some decent moves. Tuesday’s release of inflation data surprised many coming in well below last month, and significantly below expectations. Inflation has been stubbornly high in the UK for much of the past five years. This recent result will be a relief for the Bank of England (BOE) as well as consumers who have not seen wages keep pace with the gains in inflation. The GBP, that has had a good run lately, saw some sharp losses on the back of this data. On Wednesday however, we had two key releases and they combined to help the currency recover. The first was employment data which continues to show good strength. Unemployment claims were well below expectation and this helped the unemployment rate fall from 7.7% to 7.6%. That data was followed an hour later by the BOE inflation report which had a very upbeat tone. Governor Carney says the UK’s glass is ‘definitely half-full” and that unemployment is likely to fall quicker than forecast. This is key for monetary policy as Carney has tied keeping interest rates low to a targeted unemployment rate of 7%. He was however quick to point out that hitting that level will not necessarily trigger a rate rise. That may be so, but 72% of UK households say the BOE will raise rates within 2 years. The way things are going currently a rate hike near the end of next year is a very real possibility. Retail sales data out last night did however provide a small reality check and saw the GBP lose some ground. Sales unexpectedly fell in October coming in at -0.7%. Expectations were for a flat result. Next week we have the BOE minutes, public sector net borrowing, and industrial order expectations to digest.


Japan
Much of the data from Japan this week has actually been a touch negative printing below expectation and down on the previous month. This was the case for the business activity index, consumer confidence, and core machinery orders. There has however, been one bright spot and it was the more important GDP result for the third quarter. The economy grew at a rate of 0.5% in that quarter against an expectation of 0.4%. Japan’s economy minister Amari was quickly on the wires following the release saying the economy remains on an uptrend with solid domestic demand. The Bank of Japan (BOJ) will likely be singing a similar tune when they release their monetary policy statement on Thursday next week. Ahead of that we have trade balance data to draw focus on Wednesday.


Canada
It has been a quiet week for news out of Canada. We did get some positive news from the government whose fiscal picture is now better than expected. They continue to forecast a surplus in 2015-16, but have revised it higher to 3.7bln verses the last estimate in March of 0.8bln. Trade balance data last night was better than expected but had no meaningful impact. New house prices continue to appreciate up 1.6% year on year in October. The week is rounded off with manufacturing sales data tonight. Then next week we have wholesale sales, inflation, and retails sales data to draw focus.
 

FX Update - US data surprises

Written by Ian Dobbs on November 12th, 2013.      0 comments

Market Overview:
Last week proved to be a very interesting one in the wider financial markets. Three major pieces of news provided the lead for some periods of wild price action, especially into the later end of the week. The European Central Bank (ECB) aggressively cut their “refi” rate by .25% to .25%, which is the first cut since May 3rd. Whilst not out of the blue, the move follows a very recent of a change in sentiment in the interest rate market in Europe as inflation numbers came in lower than expected. Adding to the mix were two materially better than expected pieces of economic news in the US. Both the GDP and employment numbers reversed the recent softer trends. The implications of which affect all markets with the prospect of initial tapering of the Quantitative Easing (QE) apparently re-emerging as a prospect for the December Fed monetary policy meeting. Australasian markets were not without their interest either. Australian news was mixed, with strong retail sales data coupling with soft employment news and a relatively neutral stance from the RBA at their monetary policy statement. In New Zealand the pressure builds on the RBNZ with materially better than expected employment numbers further boosting sentiment.
2:30pm (NZT)
Australia
The Australian dollar was weighed on last week by the very average employment data that showed a big fall in full-time work and a big increase in part-time employment. But this negative influence has been countered somewhat by consistently better than expected data coming out of China. The RBA have said that effects of previous rate cuts are still flowing into the economy and that was underlined yesterday by home loans data that showed a bigger than expected jump of +4.4%. In the last hour we have also seen business confidence figures that showed a substantial decrease from last month. This is helping to keep the AUD on the back foot. The rest of the week sees consumer sentiment, wage price index, and inflation expectations set for release.


New Zealand
There have been no market impacting releases since last week’s better than expected employment result. We did get credit card spending figures that came in a touch better than expected at +1.4% but there was little interest from the market in the result. Finance minister Bill English was on the wires reaffirming that the NZ budget is on track for a surplus in 2014-15. Tomorrow we hear from the RBNZ when they release their financial stability report. That is followed up on Thursday by retail sales data which will be closely watched.
 
 
United States
After Thursday’s surprisingly strong US GDP result all eyes turned to Friday’s release of employment data. The last few months have seen only average results for employment, with most releases coming in a touch under expectation. As a result the market wasn’t getting too carried away with forecasts for this month’s release, expecting an increase of around 120k. The actual figure however, was a surprisingly healthy increase of 204k. This makes it the second strongest reading since early 2012, and coming on the back of the GDP figure it helped to spur increased demand for US dollars. The report did show the unemployment rate ticked up from 7.2% to 7.3% but this was a direct result of the Government shutdown. The furloughed workers were able to apply for unemployment benefits during those two weeks off work, and so the unemployment rate should correct lower next month. The result has also increased chatter about a potential Fed tapering in December, although this is still only a remote possibility. A US holiday yesterday means it has been a quiet start to the week but over the coming days we have trade balance data, a speech from Bernanke, and we will also hear from incoming Fed Chairman Janet Yellen when she testifies on monetary policy before the senate banking committee.


Europe
Last week was dominated by the European Central Bank’s (ECB) decision to cut rates. The risk was always there after very soft inflation the week before. However, many in the market were only expecting a signal from President Draghi that a cut would follow in the December meeting, so the decision came as a bit of a surprise. Over the weekend we have seen comments from an ECB board member who said they can still cut interest rates further if needed and provide more liquidity to the Euro-zone banking system should it be required. The markets suspect any further action will likely take the form of adding liquidity with another LTRO (long term refinancing operation). A recent survey of economists showed 70% expect a new three year LTRO in the first quarter of 2014. Pressure on the Euro was kept up over the weekend after Standard and Poor’s rating agency downgraded France’s long term rating from AA+ to AA. S&P said the rating is constrained by the governments elevated spending and tax levels, and it’s high and still rising debt burden. This week we get GDP readings from France, Germany, and Italy, along with Euro-zone industrial production and a second reading of inflation.


United Kingdom
Last week was a good one for UK data with only the trade balance missing expectations when it was released on Friday evening. Earlier in the week we has good readings from both the construction and services PMI’s, as well as solid results from industrial and manufacturing production data. At this point it seems the only negative for the UK economy is that its fortunes are so closely tied to those of Europe. There is however, growing concern that lessons from the past have not been learnt, and that the UK housing market could once again be a cause for concern. Prime Minister David Cameron is having to defend accusations that the governments ‘help to buy’ scheme is only helping to inflate another property bubble. The PM says it’s all about helping hard working people get on the first rung of the property ladder, but last month alone 2000 new mortgages were issued under the scheme. This week will be another interesting one for the UK with inflation, employment, and retail sales all set for release. We also get the Bank of England’s (BOE’s) inflation report and a speech from Governor Carney to digest.


Japan
The only data out of Japan recently has been the current account figures released yesterday. That result highlighted the structural issues a weaker Yen and massive energy imports are causing. The seasonally adjusted result of -1.3 trillion represents a near record low for data stretching back to 1996. In the last hour we have seen the release of the tertiary industry activity index which came in below expectations at -0.2%. This is considered a lead indicator of economic health and the negative result has weighed on the Yen somewhat. Later this week we get consumer confidence, core machinery orders, and GDP data to digest.


Canada
Data out of Canada last week will have done nothing to influence the Central Banks neutral stance. The highlight was the Ivey PMI (a leading indicator of economic health) which came in well above expectation, however building consents were negative and employment data of Friday was largely uninspiring. Employment rose by 13,200 in October which was just a touch above expectation, but overall a very modest result. The unemployment rate remained the same as last month at 6.9% which is the lowest level since 2008. A Canadian holiday today means we have a very quiet week data wise with only the trade balance and manufacturing sales out towards the end of the week.


Major Announcements last week:
  • Australian Retail Sales +.8% vs +.5% expected
  • UK Construction PMI 59.4 vs 58.9 expected
  • RBA leaves monetary policy unchanged as expected
  • UK Services PMI 62.5 vs 60.4 expected
  • US Non-Manufacturing ISM 55.4 vs 54.2 expected
  • NZ Employment change +1.2% vs +.5% expected
  • Canadian Ivey PMI 62.8 vs 54.7 expected
  • Australian Employment change 1.1k vs 10.3k expected
  • BOE leaves monetary policy unchanged as expected
  • ECB curs “refi” rate by 25pts to .25% unexpectedly
  • US Advanced GDP 2.8% vs 2.0% expected
  • Canadian Employment growth 13.2k vs 12.7k expected
  • US employment growth 204k vs 121k expected
  • Chinese Inflation 3.2% vs 3.3% expected
  • Chinese Industrial Production 10.3% vs 10.1% expected
 

Economies of note - 8th November

Written by Ian Dobbs on November 8th, 2013.      0 comments

1:15pm (NZT)
Australia
This week has been a busy one for news in the Australian economy. As can be expected at this stage of an economic cycle, the news has been mixed. In terms of the data, strong retail sales numbers on Monday have been balanced out by today’s soft employment numbers, where the Unemployment rate rose as expected to 5.7%. Of note was a fall in full time employment, and the next month’s data will now be of particular importance to see if a trend starts to establish. The RBA monetary policy announcement was broadly as expected. The RBA remain poised to react if needed to softer economic data, and again reiterated their view that the Australian dollar was outperforming the economies fundamentals. The quarterly RBA Monetary Policy Statement expected later on today will offer further insight to their read on the economy, and of course conditions in the wider global economy. Next week is relatively light on economic news, with Tuesday’s NAB business confidence data offering the primary focus for the week.


New Zealand
The dominant piece of economic news in New Zealand this week has been the release of the stronger than expected 3rd quarter employment numbers. The 1.2% increase in employment has pushed the Unemployment rate down to 6.2%. Growth has been driven by strength in construction and hospitality sectors, predominantly in Christchurch and Auckland. With this kind of number supporting the concept of initial hikes to the 2.50% cash rate in the first half of 2014 from the RBNZ, the NZD has been in demand on all crosses following the release. Slightly balancing out this positive sentiment has been the second monthly fall in dairy prices from the Global Dairy Trade auctions. This is a healthy settling down of prices after the recent peak in demand. Next week will see the focus turn to the release of the 3rd quarter NZ retail sales numbers on Thursday, and the bi-annual RBNZ Financial Stability report which is due early Wednesday morning.


United States
US economic activity seems to be slowly progressing to date there has been little noticeable effect from the two week government shutdown. Earlier in the week we saw data on factory orders that improved month over month, and on Wednesday night we got the latest reading on the service sector of the economy. The result was above expectation and showed there is solid expansion in the sector. Looking into the detail of the report showed the employment component has picked up as well and that bodes well for the broader economic outlook. Wednesday also saw the release of the leading index which is a combination of ten economic indicators and designed to predict the direction of the economy. The index held steady at a respectable 0.7% which was right on expectation. Expectations for the economy were given a boost last night after GDP data for the 3rd quarter hit the wires. The result of +2.8% was much higher than the market was expecting which was in the area of +2.0%. As a result the USD has strengthened. But in a graphic display of how central bank money printing has affected markets, the US stock market has lost over 1.0% so far today on the back of the good economic news! That is because good economic data makes tapering by the Fed sooner rather than later a more likely proposition. And one of the biggest effects quantitative easing (money printing) has had is to inflate the stock market. So a potential reduction quantitative easing is negative for stocks. The week is far from over however and tonight we get what could be the biggest number so far, with the employment report set for release. Next week is a little lighter in terms of data with the highlights being the trade balance, productivity, capacity utilization, and industrial production.


Europe
Data from Europe this week has been patchy at best and nowhere near good enough to overcome last week’s surprisingly soft inflation figure. As a result of that figure, and the fragile nature of the recovery so far, the European Central Bank (ECB) last night decided to cut interest rates again. The move takes the deposit rate from 0.5% to 0.25%, and has seen the Euro weaken substantially. After the cut ECB President Draghi said “In principle, we could cut even further” and the fact remains that further action is a very real possibility. Up until last night the ECB had cut 375 points and if that hasn’t had the desired effect, what’s another 25 points going to do? The truth is it’s largely symbolic. One of the problems the ECB has is cuts are not flowing through the banking system and resulting in more / cheaper lending to the areas in the economy that need it. Lower rates aren't been passed on by banks because they are worried about their own finances. The LTRO’s (long term refinancing operations) that pumped cash into the banks found its way either back on deposit at the ECB, or into government bonds. As a result the ECB have undertaken a check of the banking system which will include stress tests for each bank. This review will take a year to complete and should any banks fail a stress test, they will be forced to raise capital. In the meantime, Draghi has made it abundantly clear the he will do whatever it takes to support the Euro area. That could easily mean we see further LTRO’s, negative deposit rates, or some other measure if the need arises.


United Kingdom
It has been another solid week for the UK economy with data underlining the fact that there is some real momentum starting to build. On Monday we got data on the construction sector that showed it is expanding at a very healthy rate, and on Tuesday we got a reading on the service sector of the economy. Bearing in mind that it makes up around 78% of UK economic activity, it therefore carries a lot of weight. The reading of 62.5 can only be described as spectacular. Anything over 50 denotes expansion in the sector and this result was not only above expectation, but the strongest reading in 16 years. This has reinforced views that the employment rate is likely to fall below the 7% forward guidance threshold, well ahead of schedule. To back this up on Wednesday we got better than expected industrial production numbers and last night the Bank of England (BOE) had their interest rate meeting. As widely expect they left rates and the level of quantitative easing unchanged. Barring another crisis, the next move in UK rates will be a hike. The only question is how far in the future will that be? Many commentators are starting to question why rates are at an emergency low 0.5% when the economy is, by any measure, booming. Next week will be interesting with the key releases of inflation, unemployment, and retail sales on the calendar.


Japan
There have been no economic data or releases this week to materially change the outlook for Japan. The most interesting thing to note is how surprised the Bank of Japan (BOJ) was when the Fed decided not to back in September. This was revealed in the BOJ minutes from there Oct 2-3 meeting. As a result a number of BOJ official now see US economic policy harder to predict, and many others said the Japanese central bank should learn from the negative impact of Fed communication. Next week we have the current account, core machinery orders, and GDP to draw focus.


Canada
It has been an interesting week so far for the Canadian economy. The volatile building consents number was disappointing at +1.7% for the month, albeit this data is of limited impact. However the monthly Ivey Purchasing Managers Index (leading indicator of economic health) has surprised to the high side with a large leap in activity to 58.2 on the index against an expected result of around 52. This comes after the recent run of average economic news that has seen any expectations of cash rate hikes from the BOC shelved until late 2014. So this positive surprised has seen the beleaguered CAD initiate a fight back of sorts. Whether or not this increased demand leads to further momentum with be guided by the monthly employment numbers that are due for release later on today. Next week sees the focus turn to the trade numbers on Thursday, and manufacturing data on Friday.
 

FX Update - Central Banks remain the primary focus

Written by Ian Dobbs on November 5th, 2013.      0 comments

1:15pm (NZT)
Market Overview:
The wider markets have had an interesting last week or so. The primary theme of central bank focus remains in place. Last weeks’ unchanged monetary policy announcements from the US Federal Reserve, the RBNZ and BOJ were expected, and come ahead of this week’s decisions from the RBA, ECB and BOE. Only the ECB looks to have any chances of altering their monetary policy, as deflationary fears again build in the European markets. Correspondingly, the Euro was the weakest performing major currency last week. Accentuating this move was the continuation of the grinding recovery from the US dollar. This recovery has been across the board as a pick-up in the economic news has seen investors ease back pressure on the greenback. In terms of the Australasian duo, a rebound in Chinese sentiment has coupled with a stabilisation of the Australian economic news to increase demand for the Australian dollar. The improved AUD sentiment has seen it outperform the NZ dollar, as the expectations of further easing to the cash rate from the RBA are again lowered.


Australia
Today will be a big one for Australia markets, with the RBA rate statement late this afternoon. No change in the cash rate is expected, and it’s now very likely that we have seen the bottom in the rate cut cycle. Any hike is still a long way off, but there is less and less need for further cuts. At the end of last week we got producer prices data that came in well above expectation and showed the fastest year on year rise since last 2011. Yesterday saw the release of retail sales data for September, which was also much stronger than expected at +0.8%. Recent data from China has also showed improvement and this should lend support to the Australian economy going forward. All the signs are that the economy is slowly making a transition away from mining led growth, and the RBA will likely be happy to hold rates steady for an extended period to foster this change. Over the rest of the week there are more key releases with trade balance tomorrow and unemployment rate on Friday along with the RBA’s quarterly Monetary Policy Statement.


New Zealand
Late last week the New Zealand Treasury published its monthly economic indicators. In that release they said the outlook is for stronger growth in the coming quarters, and that loan limits are dampening mortgage demand. This they say leaves the RBNZ with more flexibility on rate rises. Although the loan limits are likely to have an impact it’s hard to see it being material enough, in the absence of further measures, to change the expectation of rate hikes starting next year and totalling at least 2% by 2016. Tomorrow we get employment numbers which will be closely watched. That however will be it for domestic data on the week and the focus will turn to offshore events, the highlight of which will be the US employment report on Friday.
 

United States
Data from the US continues to suggest the economic recovery is on track, despite the government shutdown in October. Activity in the manufacturing sector expanded in October for the fifth consecutive month and actually showed the highest reading since April 2011. Last night we saw data on factory orders for September, and although it came in a touch below expectation, it was a big improvement over the previous month. All this is helping the USD to a degree, as is some talk that a Fed QE tapering in December is not off the table. This obviously can’t be ruled out with the trend of improving data, but it seems unlikely given the potential in January and February for more political brinkmanship with regards to the debt ceiling. There is plenty of data out this week to draw focus. Non-manufacturing index, GDP, consumer confidence, and the employment report will all be closely watched.


Europe
It is going to be a very interesting week for Europe and the Euro. The main event will be the European Central Bank (ECB) rate announcement on Thursday evening. In the past week calls have been growing for action of some kind from the bank. It seems the market is split 50/50 on whether we will get a cut, but that’s a big increase on expectations of only a few weeks ago. The inflation environment certainly leaves them plenty of room to cut and we don’t have to go back far to remember the ECB saying they have discussed the potential for negative interest rates. President Draghi has certainly proved to be a man of action and there seems little risk in cutting rates again to support the very tentative recovery. Recent readings on manufacturing have been a mixed bag with improvements in Germany and Spain, while French and Italian readings decreased. Ahead of the ECB meeting we get data on retail sales and German industrial production.


United Kingdom
UK data continues to support the outlook for a solid economic recovery going forward. Late last week we got the latest reading on the manufacturing sector and although it was a touch below expectation, it is still at very healthy levels which represent decent expansion in the industry. Last night we saw data on the construction industry which accounts for around 6% of GDP. It was another strong reading gaining on last month and printing at the highest level in six years. We have also seen the Confederation of British Industry (CBI) revise higher their forecasts for growth in 2014 to 2.4%. This will all be welcome news for the Bank of England (BOE) who have their monetary policy meeting on Thursday. We can expect no change in interest rates and a reaffirmation of their forward guidance to keep rates low until unemployment hit 7%. That trigger could be hit a lot sooner than they think if the economy keeps up its current form. Ahead of the BOE meeting we get data on the service sector and manufacturing production.


Japan
There have been no economic releases from Japan since last week’s BOJ monetary policy statement. The bank was somewhat upbeat in that release and reaffirmed to keep policy very stimulatory until inflation reaches their 2% target. There isn’t going to be a lot to digest this week with only a speech from BOJ governor Kuroda this evening and the minutes from last week’s meeting tomorrow.


Canada
The Canadian dollar put in a bit of a recovery late last week, helped by better than expected GDP data. There is certainly room for the currency to recover more ground although with the central bank now very much in the neutral camp (from a previous tightening bias), broad based gains seem unlikely. Upcoming data this week will play a big part with building permits, business diffusion index, housing starts, and employment numbers all set for release.
 

Economies of note - 1st November

Written by Ian Dobbs on November 1st, 2013.      0 comments

2:45pm (NZT)
Australia
RBA Governor Stevens spoke earlier in the week and his comment that “the level of the currency was not supported by fundamentals” saw the Australian dollar come under some pressure. But the currency has recovered some of the lost ground over the last couple of days on the back of decent new home sales data and very strong building consents numbers. The later was a real surprise coming in at +14.4% against expectation of +2.8%. It was also the third highest result in the last four years. There will be plenty to digest next week with retail sales, the RBA rate statement, trade balance, and employment data all set for release.


New Zealand
It has been an interesting week for the New Zealand economy. Moody’s rating agency caused some volatility on Wednesday when they revealed there had been discussion around cutting NZ’s AAA rating. Apparently NZ has the biggest investment gap for all the triple A rated countries and the current account deficit makes it vulnerable. The NZD fell on the headline, but eventually recovered. The RBNZ left rates unchanged at 2.5% yesterday and released a very balanced statement. The NZD rallied as traders focused on a warning from the bank that they don’t want to see persistent house price inflation compromise financial or price stability. However, the RBNZ also said the high exchange rate gives them room to be flexible as to the timing and magnitude of future interest rate increases. Over-all the statement has done little to change views and a rate hike in the first half of next year is on the cards. Following the RBNZ statement we got solid building consents data that come in close to last month at up 1.4%, and another very strong reading on business confidence. Next week’s calendar is pretty light with only employment data on Tuesday to focus on.


United States
The focus in the US this week was on the FOMC rate announcement and statement released early on Thursday morning. The statement was largely unchanged from previous ones although on balance it was considered to be a little more optimistic than the market had been expecting. This caused the USD to gain ground and stock and bonds to sell off a touch. Although the statement acknowledges a slowing in the pace of the housing recovery, it certainly doesn’t shut the door on a December tapering. Data between now and then would have to improve substantially though before anyone in the market seriously started pricing the risk of that in. To that extent in the last few days we have seen some mediocre private employment numbers that suggest next week's employment report will be another ho-hum affair. We have also seen the release of delayed inflation numbers for September which showed a very benign increase of 0.2%. The core number was even softer at 0.1%. This week we have also seen some weak retail sales data that was dragged down by a fall in auto sales. On a brighter note, the US Treasury Department released data showing the US deficit narrowed substantially in 2013. Although the deficit is still large at $680bln, it’s a lot better than last years $1,089bln, and is actually the smallest deficit in five years. Tonight we get the manufacturing index to digest and then next week the highlights will be non-manufacturing index, GDP, and the monthly employment report.


Europe
It has been a very interesting week for Europe and it’s economic outlook. Data over the past few weeks has been less than inspiring with most of it coming in on the soft side. Up until last night the Euro had ignored the weaker data and performed strongly, defying many predictions. But it seems a lot can change in the space of 24 hours and last night two key pieces of data acted as the straw to break the camel’s back. Eurozone unemployment rose from 12% to 12.2%, and inflation fell to just 0.7%. The ECB has previously said it sees the inflation risks as broadly balanced, but this last piece of data now says deflation is a very real threat. As a result we have seen forecasters rapidly changing their views. Economists who previously saw no change in rates until 2015 are now calling for a 25point cut next week. Expectations of another LTRO (long term refinancing operation- aimed at longer term interest rates) have also gained traction over the last few days, and it seems issues in Europe are once again going to take centre stage. Earlier in the week the EU’s Ollie Rehn was speaking in the US and was quoted as saying it’s ‘clearly premature’ to declare Europe's crisis over. He couldn’t have been more accurate. Greece and Troika officials (EU, IMF, and ECB) are once again facing off over the black hole in Greece's finances. Italy, which is literally too big to be saved by outside help, is struggling under the effects of austerity. Their debt to GDP ratio has risen 15 percentage points in 15 months (to 133%) because there is no growth. This is exactly what happened to Greece, with devastating consequences, yet the same medicine is being applied. German insistence on austerity when growth is desperately needed could prove fatal. There are however some bright spots. Spain saw retail sales data rise for the first time since June 2010 and their economy has officially emerged from a two year recession, growing 0.1% in the last three months. That will be a relief for the ECB who meet next week on Thursday to review monetary policy. All eyes will be on them to see what, if any, action they will take. Ahead of that we get readings on the manufacturing and service sectors, retails sales, and German industrial production.


United Kingdom
Data out of the UK this week has continued to support the on-going recovery. Some figures, like consumer confidence, have printed a touch under expectation, but looking at the bigger picture this just represents a tiny pullback in an otherwise strong uptrend, so the impact has been limited. House prices on the other hand continue to perform strongly up 1.0% in October against an expectation of a 0.7% gain. Tonight we get data on manufacturing which will be closely watched. And next week will be a big one with readings on the construction and service sectors followed by the Bank of England (BOE) interest rate meeting and statement.


Japan
For the most part the data out of Japan this week has supported the outlook for an improving economy. Household spending and retail sales were both strong numbers, and housing starts came in well above expectations. On the face of it, average cash earnings looked positive printing at a gain of 0.1%. But if you stripped out overtime and bonuses regular wages fell 0.3% in September, which marks the 16th straight month of decline. Japan may be succeeding in stoking inflation, but that won’t help in the long run if wages don’t keep pace. The Bank of Japan (BOJ) was upbeat on the economy in their monetary policy statement on Thursday while voting unanimously to keep policy unchanged. Next week is a light one for data, with the highlights being a speech from BOJ Governor Kuroda, and the minutes from the last BOJ meeting.


Canada
The Canadian dollar has been a poor performer over the past couple of months. A number of factors have led to this including falling oil prices, a slowing US economy and US government shutdown, and finally the Bank of Canada (BOC) moving away from a tightening bias to a more neutral stance. Earlier in the week we has some soft data on manufacturing prices paid and received, which is a lead indicator of inflation. This kept the CAD on the defensive, but in the last 48 hours the CAD has started to make a recovery. It may well have been the case that the CAD was too oversold, as markets love to push further than fundamentals justify. However, better than expected GDP last night certainly helped the case for recovery. The Canadian economy grew at 0.3% last month against an expectation of 0.2%. Next week we have building permits data, business diffusion index, housing starts, and employment numbers to digest.