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Economies of Note - 23rd December

Written by Ian Dobbs on December 23rd, 2016.      0 comments

3:30pm(NZT)
Australia
It has been a quiet week in Australia this week which has meant the recent trend of weakness in the local currency against the greenback has continued to prevail. Local focus was on Tuesday’s RBA minutes which saw the Reserve Bank indicate that it was happy with the current interest rate setting of 1.5%. The decision at the meeting earlier in the month to leave rates on hold was expected and was the fourth in a row that saw rates remain unchanged. The minutes revealed reservations from the board over the effect of low interest rates on asset prices and household borrowing. Concerns over Australia’s AAA rating circulated earlier in the week although the budget deficit was insufficient to cause any immediate move from the three key ratings agencies. Weakness in iron ore prices during the week also weighed on sentiment. Expect a quiet finish to 2016 with just private sector credit figures due on New Year’s Eve, although indicators from offshore will continue to be watched with a keen interest.
 

New Zealand
The New Zealand dollar has continued to slide lower against the greenback in trade heading into the Christmas break. The week started with Q4 Westpac consumer sentiment which rose solidly from the quarter prior. October building consents and ANZ consumer confidence for December both registered gains from the month prior. Trade data for last month showed a larger than expected deficit on the back of falling beef and lamb exports. Migration data posted another broken record as 70,400 new residents arrived in the November year, again higher than expectations. The latest GDT dairy auction registered a minor (0.5%) overall decline although the outlook for 2017 looks sound as production levels support pricing in the months ahead. The main release of the week was yesterday’s Q3 GDP data which came in higher than expectations at 1.1%, although revisions to previous data saw the 3.5% annual result slightly miss the consensus forecast. Growth in the quarter was broad based as 13 of the 16 surveyed industries grew during the period. Local news will be sparse over the holiday period with just a further GDT dairy auction set for release in the first week of the NY.
 

United States
This week has been one about consolidation for the US dollar after the recent strong gains off late. Releases have included the Markit Composite PMI which eased to 53.7 from 54.9 and existing home sales which rose 0.7% in November. The lift was against expectations of a 1% decline and was the third consecutive monthly rise. Other data included a 21k rise in initial weekly jobless claims (worse than expectations) and a fall in November durable goods orders which closely matched that expected. Personal income was flat for the same month (against expectations of a small lift) and the final read of Q3 GDP was raised from an annual rate of 3.2% to 3.5%. The pace of growth in the third quarter was the fastest in two years. Comments from Fed Chair Yellen included upbeat remarks on the US labour market. The week will conclude with Michigan consumer sentiment and new home sales numbers today. Data over the holiday period will be dominated by December Nonfarm payrolls on Friday January 6th.
 

United Kingdom
This week has been quiet in the UK so far as much of the focus has been reserved for today’s third quarter GDP data. Key news has included a ruling from the EU courts which ruled that member states, rather than just EU institutions must approve a trade deal with Singapore. This ruling means EU national parliaments could attempt to spoil any EU-UK trade deal during the Brexit process as they attempt to get additional concessions. Deals would also run the risk of getting blocked by national or regional parliaments much in the same way as was seen during the recent Canadian-EU CETA agreement. Data released over the week has included a stronger than expected CBI distributive trades survey and a marginal improvement (to -7) in the Gfk consumer confidence indicator, although neither release created much market interest. Data over the holiday period includes BBA mortgage approvals on Wednesday next week whilst 2017 starts with manufacturing PMI numbers on the third of January.


Europe
The final full week of the year has been another quiet one in Europe. The German IFO showed business morale lifting to its highest level since February 2014 as the business climate index rose to 111 from 110.4, and result was marginally higher than expected. Current conditions increased sharply to its highest level in over 4 years. Other data included German producer prices which lifted by more than expected in November and EU consumer confidence which increased to -5.1, the strongest reading since April 2015. EU court rulings have been in the news and included rulings on Spanish bank reimbursements to borrowers who overpaid on mortgages and a ruling that member states rather than just EU institutions need approve a trade deal with Singapore. The latter ruling will greatly increase the complexity and time taken to negotiate trade deals moving forward (including with the UK during the Brexit process). Look for numbers to kick off in 2017 with PMI indicators on January 2nd.
 

Japan
Focus during the Christmas lead-up week was on Tuesday’s Bank of Japan (BoJ) meeting which saw the BoJ leave policy on hold (as expected) and move to counter any suggestions that they may be considering tapering of the huge asset purchase programme. The bank suggested that the recent JPY weakness and overseas demand will heighten prospects for a solid economic recovery. The announcement had little effect on the markets during what has been a quiet week for volatility in the USDJPY. The only other data of any interest was the November trade numbers which delivered a smaller than expected surplus for the month. Falling imports which outpaced the decline in exports helped Japan post its third straight monthly surplus, although the size of the year-on-year fall in imports was smaller than expected. Data next year starts on January 3rd with manufacturing and services PMI indicators. Inflation data which is due on Boxing day. Expect any volatility during the holiday break to come mainly via risk and US dollar sentiment.


Canada
Dominating interest so far this week in Canada was yesterday’s inflation data. The annual inflation rate was seen cooling last month to 1.2% from 1.5% in October which suggests that the BoC will continue to maintain a cautious stance that keeps the possibility alive of further rate cuts in 2017. New measures of core inflation were also below the bank’s 2% target. Retail numbers for October rose by more than expected as consumers paid higher prices for gasoline and increased their purchases at general stores. Wholesale sales for October registered a larger than expected gain and included strong gains in the building material and supplies subsector. Focus to conclude the week will be on today’s monthly GDP numbers. Data in the New Year kicks off with the RBC Manufacturing PMI indicator on the 3rd January.
 
 

FX Update : US dollar sentiment and positioning to provide an interesting start to 2017

Written by Ian Dobbs on December 20th, 2016.      0 comments

1:15pm(NZT)
Overview
Gains by the US dollar index, which reached almost 8% last week (on its highs) from the lows reached on US Presidential Election day, came as the Fed upped the ante on rate hikes for next year. The 0.25% hike last week came with the projection of three further hikes of the same size next year and included an admission by Fed Chair Yellen that pending changes in US fiscal policy had played a part in the changed expectations. Expect positioning and sentiment to play a large role over the holiday period and in early 2017 given the recent large moves. Focus for this week starts with today’s BoJ meeting which is expected to see no change in the current monetary policy settings. US data includes existing home sales tomorrow and various releases on Thursday which will be headed by the third quarter’s economic growth numbers.
 

Australia
A more hawkish than expected US Fed which highlighted a higher projected interest rate path for 2017 put the Australian dollar under heavy pressure in trade last week. Heavy falls in iron ore yesterday (-7%) have also weighed as losses extended to four sessions in a row for the key Australian commodity. Concerns over a downgrade to Australia’ key AAA sovereign debt rating also weighed ahead of yesterday’s mid-year budget update, although two of the three key agencies confirmed that there would be no immediate loss after the budget revealed a $10.3Bn blowout in the deficit over four years yesterday. Data last week was led by the stronger than expected November jobs report. Leading indicators on employment such as job ads and vacancies signal reasonable jobs growth ahead. Consumer confidence and business conditions fell and house prices grew at a more modest 3.5% annualised rate. Focus this week is on today’s RBA minutes which look unlikely to surprise. Expect the RBA to remain optimistic about the medium term economic prospects, especially after the recent lift in commodity prices.
 

New Zealand
A lack of important local data saw the local currency garner its direction from offshore last week. Falls from its highs against the US dollar of around 3c were seen at one point after the US Fed signalled an intention of a 0.75 percent hike in rates throughout next year, higher than previous market expectations. Local data included house prices which rose 14.9% y/y and Q3 manufacturing which maintained a steady rate of growth. The terms of trade eased (in a large part thanks to falling export prices) and the November business PMI posted a minor fall. Completed building work rose strongly in the third quarter (+22%) and October building consents released yesterday posted its first gains since June. Homes consented in Auckland rose above 30k in the latest year which is the first time the figure has passed 30k in over 11 years. ANZ business confidence posted a minor rise for December when released yesterday. Look to GDP data on Thursday for key local influence this week. Current expectations are for growth to set a brisk 3.7% y/y rate.
 

United States
Focus last week was naturally on Wednesday’s FOMC meeting which saw the Fed lift interest rates for the first time in a year. Accompanying the move was the forecast for three further moves in 2017, one higher than previously signalled (although the Fed signalled four hikes for 2016 at the same time last year and we got only one). The move sent the greenback higher in following trade and was accompanied by Fed speakers on Friday who also talked up the prospect of further rate hikes next year. Local economic data included solid gains the New York and Philadelphia regional manufacturing indices and continued strength in the Markit manufacturing conditions PMI. Small business optimism registered a solid rise in November and home builder conditions rose to their highest level since 2005. Housing starts disappointed (-18.7% m/m) although came on the back of a 27% gain the previous month. Industrial production and retail sales were weaker than expected although the latter followed two prior strong months. Focus for this week includes existing home sales on Wednesday and Q3 GDP and durable goods on Thursday.
 

United Kingdom
There was plenty to absorb in the UK last week given the key data and BoE monetary policy meeting. The decision by the BoE to leave rates on hold at present levels was expected. The decision was unanimous amongst the MPC members and was accompanied by an apparent softening on the inflation outlook from Governor Carney which could be interpreted as a mildly dovish signal despite their neutral policy bias. Key data included inflation which marginally exceeded expectations on an annual basis and employment data which was largely on consensus. Retail sales continued to maintain an impressive rate of growth when measured against those levels seen at the same time last year. Look for GDP and business investment data near the end of the week to dominate the news from the UK this week.


Europe
Last week was a quiet one for key news of interest out of Europe. The German ZEW (current situation) rose to its highest level in over a year although expectations remained unchanged on the month prior. Industrial production across the euro area missed expectations by easing although the business conditions PMI remained unchanged in December at a solid level which points to some acceleration in growth. German harmonised inflation was flat in November and rose 0.7% year-on-year, levels that matched those seen in France. Across the euro area inflation declined 0.1% during the month although the fall was twice the size at the core level. The 0.6% and 0.8% (core) year-on-year numbers matched expectations. German IFO data released yesterday broadly met expectations and created little stir. Look for a quiet run into Xmas that will see greenback sentiment be the driver of trade over the week.
 

Japan
Last week was again driven by events offshore which saw the US dollar extend its gains against the Yen to over 17% (on its highs) since the Trump Election Day lows. The Fed confirmed last week that the prospect of higher spending under the incoming Trump government had influenced their rate expectations for 2017. This saw them signal an additional further 0.25% rate hike for 2017 (now 0.75% expected for 2017). Much of the recent rally in the USD/JPY has come of the back of such expectations. Data in Japan last week included the Tankan survey which pointed to a rise in confidence amongst large manufacturers. The December PMI also showed improved conditions for manufacturers and core machinery orders lifted by more than expected in October. Yesterday’s trade data revealed a smaller than expected November surplus on the back of a less than expected decline in imports. Dominating focus for this week is today’s BoJ monetary policy announcement. Expect monetary policy settings to remain unchanged as the sharp fall in the yen against the US dollar looks to drive a move towards higher inflation and economic activity.
 

Canada
Last week was a very quiet one in Canada with the only release of any interest being manufacturing sales which slipped 0.8% in October from September. The widespread weakness in the numbers was a clear negative for this Friday’s October GDP release. Direction last week for the CAD like most currencies came via the stronger US dollar which sprinted further ahead on the prospect of additional Fed hiking in 2017. Oil prices closed only marginally higher on the week despite digesting the news of the detail on the coordinated cut in production between the OPEC and non-OPEC producers, the first deal of this type since 2001. The last full week of the year will be a busy one with inflation and retail numbers on Thursday to be followed by Friday’s GDP data.
 

Economic Events.
  • Japanese Machinery Orders, +4.1% m/m vs. +1.0% exp. (Oct)
  • NZ Q3 Manufacturing Sales, +2.1% vs. +2.2% prior.
  • UK Inflation, +1.2% y/y vs. +1.1% exp. (Nov.)
  • German ZEW - Current Situation, 63.5 vs. 59.1 exp. (Dec.)
  • Japanese Q3 Tankan Large Manufacturing Index, 10 vs. 6 prior.
  • UK BoE Interest Rate Decision, on hold at 0.25% as exp.
  • US Retail Sales, 0.1% m/m vs. 0.3% exp. (Nov.)
  • US Fed Interest Rate Decision, 0.75% + 25 bps as exp.
  • NZ Business PMI, 54.4 vs. 55.1 prior (Dec.)
  • Australian Employment Change s.a., 39.1k vs. 20k exp. (Nov.)
  • EU Markit Manufacturing PMI, 54.9 vs. 53.7 exp. (Dec.)
  • US Inflation, 0.2% m/m as exp. (Nov.)
  • Canadian Manufacturing Shipments, -0.8% m/m vs. +0.4% exp. (Oct.)
  • US Philly Fed Manufacturing Survey, 21.5 vs. 9 exp. (Dec.)
 

Economies of Note - 16th December

Written by Ian Dobbs on December 16th, 2016.      0 comments

11:45pm(NZT)
Australia
November employment data was the highlight of the calendar in Australia this week. Total employment and full-time employment rose 39k during the month and was stronger than the 20k gain expected. The rise in participation saw the unemployment rate tick up to 5.7%. Full-time hours worked, which are shrinking, point to little pressure on wages inflation- although lower underemployment suggests that the excess labour supply is declining. Westpac Consumer confidence numbers were weak and fell 3.9% in December. NAB business confidence levels fell to 19 month lows. House prices which grew 1.5% q/q were under consensus and the index declined to its lowest level since Q1. The final full week of the year next week is very quiet (RBA minutes on Tuesday) so look to US dollar sentiment for direction. Sentiment towards the greenback is very strong in trade at present after yesterday’s US FOMC projections which are picking three hikes in 2017.
 

New Zealand
Rescheduling of the key local economic releases for this week till next week has ensured a quiet week for local directives. Steady gains against the greenback evaporated in trade yesterday after the US FOMC meeting which saw the NZD lose over two cents from its overnight highs. The move came after the US dollar rallied on the back of the FOMC dot plot for rates in 2017 which saw Fed participants move to expecting 3 rate hikes stead of two. Local data included REINZ house prices which rose 14.9% year-on-year and third quarter manufacturing that rose 2.1%, which was only marginally lower than the previous quarter’s revised 2.2% growth. Terms of trade data for the same period showed a further easing as export prices deteriorated 2.8% in the quarter. NZ business PMI data eased in November, although building work completed continued to post strong growth in Q3 (+22%). Local focus next week will concentrate on Thursday as we receive the delayed GDP and Balance of Payment numbers. Dairy price data will feature overnight Tuesday.
 

United States
Yesterday’s FOMC meeting provided the catalyst for yet another leg higher in the greenback which powered higher after the Fed raised its projections for Fed rate hikes in 2017. The dot plot for rates revealed participants expecting three (0.25%) hikes in 2017 instead of two. Three further hikes are still expected for both of 2018 and 2019. The board reached a unanimous decision to lift the fed funds rate by 25 bps to 0.50-0.75%. Chair Janet Yellen downplayed the size of the dot plot shift and called it “very tiny”. Yellen admitted that fiscal policy was a factor in the revisions, although maintained it was too early to assess the impact of fiscal policy. Key data this week included retail sales which rose by less than expected in November. Industrial production declined by more than expected in the same month, although was weighed on by reduced utility output as warm weather reduced energy demand. November inflation numbers conformed to expectations and the Philly Fed manufacturing survey easily surpassed expectations. Next week starts quietly (just the services PMI on Monday) and begins with existing home sales data on Wednesday. Durable goods orders/Q3 GDP feature on Thursday.


United Kingdom
It was a busy week for the sterling this week which culminated with key events yesterday. These included central bank meetings from both the US Fed and Bank of England (BoE). The former lifted rates and projected a further three hikes in 2017 which saw the market lift the greenback against its key trading pairs (including the GBP). The BoE left rates on hold at 0.25%, all members voted for the ‘hold’ decision. Activity was seen growing at a moderate pace and inflation was seen rising to 2% in the next six months. Numbers on inflation earlier in the week rose 1.2% year-on-year (y/y). Both the headline and core reads were above expectations as import prices lifted 15% y/y. Employment data was close enough to expectations to cause little fuss although the rise in average earnings was a positive. Retail sales were 5.9% higher in November from a year earlier. The level was down from October’s 7.2% rise (which was the strongest since 2002) and was in line with economist’s forecasts. GDP and business investment data on Thursday will be the highlight next week.


Europe
Recent strong sentiment for the US dollar continued in trade this week. This saw the Euro plumb lows not seen since the start of 2003. Yesterday’s FOMC projection of three rate hikes in 2017 (versus two prior) was the catalyst for the latest US dollar boost. The week has been relatively quiet for fresh economic leads in Europe. The December German ZEW (current situation) lifted beyond expectations to the highest level since September last year. Expectations for the next six months remained stable, although the euro wide reading registered a solid gain. Industrial production in the euro area eased against expectations of a small rise in October. Markit manufacturing PMI data beat expectations across the euro-zone and in key countries France and Germany, although the services PMIs underwhelmed outside of France. Focus to conclude the week will be on inflation and trade numbers for the euro area. Next week will begin with the German business IFO on Monday.
 

Japan
Trade in the Yen continues to be driven by the exceptionally strong US dollar sentiment this week. The latest gains in the greenback came after yesterday’s increased projections from the Fed for US rate hikes in 2017. Local news was dominated by the release of Wednesday’s Tankan business survey. The survey showed some improvements in the sentiment of manufacturers whilst non-manufacturing held flat in Q4. The weaker yen was a key driver of the rise in sentiment amongst large manufacturers, although small businesses which rely on soft domestic demand remain less optimistic. Core machinery orders rose by more than expected in October and the Nikkei Manufacturing PMI saw the greatest improvement in manufacturing conditions since January. In focus next week is the BoJ monetary policy meeting scheduled for the 19th and 20th.
 

Canada
Yesterday’s US Fed projections of higher than expected US interest rates for 2017 saw the Canadian dollar come under pressure in trade throughout day as investors disseminated the prospect of widening interest rate differentials between the key trading partners. Oil prices relinquished all of their weekly gains as the week progressed, partially on the prospect of higher US rates but also as numbers revealed OPEC pumping at higher than expected levels in November (150k bpd more than October). The fall in oil prices had little impact on the earlier CAD strength seen against the greenback however. The only local data was manufacturing sales which eased against expectations of a moderate gain, the release had no impact on trade. Inflation and retail data on Thursday next week will be followed by October GDP on Friday.
 
 

FX Update : US Fed and the BoE in focus this week

Written by Ian Dobbs on December 13th, 2016.      0 comments

2:40pm(NZT)
Overview
Central bank meetings from the US Fed and the Bank of England (BoE) form the main focus for the FX markets this week. The former meeting will interest most given the degree of anticipation in recent months as to when the Fed will resume interest rate hikes. The Fed launched its hiking cycle in December last year and promised four hikes this year; although the reality is that we will get only one presuming the Fed conforms to the market’s expectation of a hike on Wednesday. With recent US economic data being in line with Fed expectations and given the strong market response to the Presidential election a hike should be a given. Expect no move from the BoE on Thursday given the recent string of better than expected UK data and recent relative stability in the pound. We also expect the BOE’s MPC to indicate no bias on the direction of the next move in rates.
 

Australia
Last week saw the RBA leave rates on hold at the current level of 1.5% which was fully expected. Governor Lowe noted the low levels of inflation in many countries which posed risks to global growth. Weak third quarter company profit numbers saw the market anticipate a weak print for the GDP data for the same period later in the week. The 0.5% result was even worse than expected, although was promptly discounted given factors such as the better than expected growth up to the June quarter, the boom in export volumes as projects come to completion (and prices rise) and one-offs such as the Brexit and the respective Australian and US elections. Other data included the October trade deficit which was worse than expected and housing finance which declined but continued to bounce back for investors. ANZ job ads remained solid and the AIG services PMI rose. Strong rises in key commodities such as coking coal and iron ore also helped shore up sentiment for the local currency. Thursday’s employment data (and earlier US FOMC decision) should provide the most interest this week.
 

New Zealand
It was a fascinating week in NZ last week that saw politics dominate the landscape as then PM John Key stepped aside and new PM Bill English take over leadership of the country yesterday. English had earlier issued an upbeat assessment of the NZ economy in the fiscal update last week. He spoke of strong employment and growth, lifting wages and an ongoing surplus despite budget stress from the latest earthquakes. RBNZ Governor Wheeler also noted the positive growth outlook and noted that the inflation lows had probably passed. Dairy prices posted another gain, albeit a moderate one which contributed to the 56% overall gain in prices that has been since July. This week started with REINZ house price sales data yesterday which showed at 14.9% y/y rise in prices, although indicated that investor lead sales are slowing particularly in Wellington and Auckland. Data today showed Q3 manufacturing sales lifting 2.1% q/q and the actual volume of manufacturing sales rise 4.8% on the same period last year. Current account data for Q3 is due tomorrow, although Thursday looms as the most interesting as we receive local Q3 GDP numbers and the earlier US FOMC decision.
 
 
United States
This week looks set to be a huge one for the US dollar as we head into tomorrow’s much anticipated FOMC meeting. A positive market response to the recent election and economic data that has conformed to the Fed’s expectations has seen market pricing move to 100% for a shift in the target range for the federal funds rate to 0.50-0.75% (+0.25%). Data last week was largely positive. The non-manufacturing ISM rose to its highest level in over a year which was driven by strong employment and business activity. Factory orders exceeded expectations and a widening in the latest trade deficit points to strong consumer demand amid a firm labour market and rising consumer confidence. Job openings and hiring data remained strong and jobless claims continued to remain low. The week finished with preliminary Michigan consumer confidence numbers which reached 23 month highs and easily beat expectations. Data this week includes key numbers from the retail and manufacturing sector, industrial production, and inflation. November building permits and housing starts also feature.
 
 
United Kingdom
Trade this week has started positively for the sterling (on the back of an easing in the greenback in overnight trade) ahead of what will be a busy week for local data which starts with numbers on inflation today. Last week’s data wrap included a better than expected services PMI, which reached 10 month highs, and weak manufacturing output which fell 0.9% m/m. Industrial production was also disappointing and was heavily affected by the shutdown of a critical oilfield. Trade data for October showed the deficit in goods and services narrowing to 2Bn GBP, although the decline in export volumes was disappointing in light of the recent sharp falls in the value of the sterling. Halifax house prices lifted by 0.2% m/m in November, although the gain was well down on previous month’s revised 1.5% lift. Looking out to the rest of this week we have employment numbers tomorrow, although Thursday’s BoE meeting should provide the most interest. Expect rates to remain on hold and given the recent better than expected data and relative stability of the GBP expect no bias to be given on the direction of the next move.
 
 
Europe
Dominating focus for last week was the ECB meeting which saw the ECB extend quantitative easing (QE) until December 2017. President Draghi’s dovish statement included comments on the lack of a sign of a convincing upward trend in underlying inflation. QE will be reduced to EUR60bn from the current EUR80bn per month after March next year. European politics were also in focus. Austrians voted against their anti-Euro far right presidential candidate with numbers that were larger than pre-Brexit. The Italians voted against the proposed constitutional reforms, although the vote was perceived mainly as a vote against PM Renzi and an increased concentration of power in government. Data released over the week included minor disappointments in the euro zone services and composite PMI. German factory orders beat expectations and the euro zone’s Q3 GDP annual numbers was revised up marginally. In focus this week is the ZEW economic sentiment indicators today, euro zone industrial production tomorrow and manufacturing PMI and inflation data later in the week.


Japan
It was a quiet week for fresh news in Japan last week which has given investors little reason to buy the yen which reached lows below 116 against the greenback in trade overnight. Data included a disappointment in household confidence and wages growth which remained weak, although economic sentiment rose to levels last seen before the sales tax hike. The third quarter’s GDP was revised lower against expectations of a small lift as estimates of capital spend and inventories were lowered. Recent positives have come from yesterday’s October core machinery orders numbers which lifted 4.1% m/m and last week’s stronger than expected current account surplus for the same month. Little interest was shown in yesterday’s mildly better than expected producer price index and weaker than expected Tertiary Industry Activity Index. The Tankan survey is in focus tomorrow, although most interest will be reserved for the later US Fed interest rate decision and statement.
 

Canada
A further surge in the price of oil has once again bolstered demand for the CAD in opening trade this week. The move came after the weekend’s announcement by Saudi Arabia that it would cut oil production by more than what was agreed with OPEC last month. Eleven non-OPEC countries agreed to cut 558k barrels per day, short of the targeted 600k, although it was still the first time since 2001 that OPEC and other producers had agreed a deal to jointly reduce output. Economic news from Canada last week included a dovish BoC statement which accompanied the decision to leave rates on hold. The October trade deficit narrowed as prices for energy products improved and further positive surprises came from the latest building permits data and the new house price index. Expect oil focus to take centre stage again this week given the developments at the weekend, although Wednesday’s US Fed statement will also be watched with interest.
 
 
Economic Events.
  • UK Markit Services PMI, 55.2 vs. 54.2 exp. (Nov.)
  • US ISM Non-Manufacturing PMI, 57.2 vs. 55.3 exp. (Nov.)
  • Australian RBA Cash Rate, held at 1.5% as exp.
  • EU Q3 GDP s.a., 1.7% y/y vs. 1.6% exp.
  • NZ GDT Dairy Prices, +3.5% vs. +4.5% prior.
  • Australian Q3 GDP, -0.5% q/q vs. 0.3% exp.
  • UK Manufacturing Production, -0.9% m/m vs. 0.5% exp. (Oct.)
  • Canadian BoC Cash Rate, 0.5% no change as exp.
  • Japanese Q3 GDP Annualised , 1.3% vs. 2.4% exp.
  • EU ECB Deposit Rate, -0.4% no change as exp.
  • US Michigan Consumer Sentiment, 98.0 vs. 94.5 exp. (Dec.)
 

Economies of Note - 9th December

Written by Ian Dobbs on December 9th, 2016.      0 comments

10:45am(NZT)
Australia
Dominating focus in Australia this week was the RBA monetary policy statement and the Q3 GDP report. The decision by the RBA to leave rates on hold at 1.5% was unanimously expected. Governor Lowe noted risks to global growth which included inflation which remains below most central bank’s targets, including Australia’s anaemic 1.3% (RBA target is 2-3%). Markets currently place only a 12% chance that rates will be hiked in 2017. Estimates for Wednesday’s Q3 growth numbers which were lowered after Monday’s weak Q3 Company operating profit numbers proved well-founded, although underestimated the degree of disappointment after growth fell 0.5% in the quarter. Many economists noted that the slump coincided with the Brexit uncertainty, and the Australian federal election and US presidential election. A strong rally of ~5-6% in key $AUD sensitive commodities of coking coal and iron ore helped the AUD rebound. Other data included a better than expected Q3 current account deficit and worse than expected October trade balance. Home lending and investor housing finance numbers are due today whilst next week sees employment data on Thursday.
 

New Zealand
Dominating interest in NZ this week has been the changing political landscape after the surprise decision by PM John Key to step down next week. Finance Minister Bill English has the public backing of caucus and looks like to take over the leadership from Key. English delivered the Treasury’s Half Year Economic and Fiscal update yesterday which painted a rosy picture around the economy of rising wages, strong growth (which was expected to average around 3% over the next five years), and increasing surpluses. Unemployment was forecast to fall to 4.3% by 2021 as average wages increased to 66k (+12.8%). Low interest rates, tourism and population growth, and a booming construction sector were seen as the drivers. RBNZ Governor Wheeler also pointed to the promising growth outlook in a speech delivered this week. Wheeler also commented that the low point for inflation had probably passed and that the trend may finally be turning for the NZ dollar. The GDT dairy auction was the key scheduled currency indicator of interest to the currency markets this week. Overall prices rose by 3.5% which was broadly in line with expectations. Prices have now risen by 56% since July and 74% for the price of whole milk powder. GDP data on Thursday dominates the data calendar for next week.


United States
This week has been far quieter in the US which has seen the greenback drift lower in trade for most of the week. Events early in the week included Fed official commentary which pointed to support for less accommodative monetary policy and a stronger than expected non-manufacturing ISM which rose to its highest level since October last year. Strength in employment and business activity were the highlights of the report. October factory orders exceeded expectations by posting its strongest rise since June last year. Strength in capital goods new orders points to a potential rebound in the recent investment slump. Other data included the October trade deficit which widened beyond expectations, although rising imports reflected consumer good demand which is benefiting from a strong labour market and consumer confidence. JOLTs job openings exceeded expectations for October although declined from the month prior. The continued drop in the weekly MBA mortgage applications since the election points to concern over future higher US rates. Focus for next week is on the busy data calendar and Wednesday’s FOMC meeting.
 

United Kingdom
Trade in the sterling has been relatively muted this week over the UK Supreme Court case which is challenging the rule that parliament must trigger Article 50 in order for the UK to start EU exit negotiations. A decision is not expected until January which has left the market to consider mixed data which included a stronger than expected services PMI which hit 10 month highs in November. Manufacturing output fell by the most in 8 months in October. The release fell well short of market expectations and was weighed by a slump in pharmaceuticals. Industrial production also disappointed on the back of a slide in oil and gas extraction due a shutdown in a key oilfield. Halifax house prices maintained their rate of monthly and annual growth in a result which met the market’s expectations. Focus for today is on trade data for October, whilst next week we have a very busy week that includes inflation data on Tuesday, employment on Wednesday and the BoE meeting/retail sector data on Thursday.
 
 
Europe
Focus for much of this week was on yesterday’s ECB meeting which saw the Euro undergo significant volatility as the market digested the announcement. An extension to the bond buying programme which was expected was delivered after the ECB said they would continue government bond purchases until December 2017. The pace of buying from April 2017 would be scaled back from the present EUR 80 billion per month to EUR 60 billion and the pool of bonds available to be purchased was extended to include bonds with a 1yr maturity and bonds with a yield below the ECB deposit rate. The Euro eventually traded sharply lower on the news. Data released over the week included minor disappointments in the euro zone (EZ) services and composite PMI reads and German factory orders which easily surpassed expectations. The final read of the EZ Q3 GDP remained unchanged quarter-on-quarter, although the year-on-year read was revised up 0.1% to 1.7%. Consumption continued to be the driver of growth as household and government spending accelerated. Focus for next week will include ZEW confidence on Tuesday, although focus continues to be on the perilous Italian banking sector and European/Italian politics.
 
 
Japan
It has been an uneventful week for news and yen trade in Japan this week. November household confidence disappointed and the marginal rise in average cash earnings was also under expectations. Further minor disappointments came via the leading index and coincident indicator, although neither release interested the markets. The dominant release of the week was yesterday’s third quarter GDP report which saw the preliminary release revised down to 0.3% q/q (from 0.5%) against expectations of a moderate 0.1% upwards revision. A reduction in the initial estimates of capital expenditure and inventories drove the decline. Balance of payment data included a current account surplus which exceeded expectations in October. Data next week starts with core machinery orders on Monday although Wednesday’s Tankan survey and industrial production data will be of the most interest.
 

Canada
Interest in Canada this week included Wednesday’s Bank of Canada (BoC) policy meeting which saw rates left on hold at 0.5% (as expected) and the bank issue a statement that was widely interpreted as dovish by economists. Governor Poloz said the bank had “actively discussed” the possibility of a further rate cut to boost the economy back to full capacity as he spoke of the significant economic slack as export growth and business investment weighed. The trade deficit for October was much better than expected after it narrowed to its lowest level in nearly a year on the back of higher prices for energy products. The Ivey PMI disappointed by easing against expectations of a small gain, although remained well into expansionary territory. Building permits and new house prices exceeded expectations in October. Expect direction next week to take a stronger lead from oil given the lack of data due.
 
 

FX Update : ECB in focus this week, US payrolls confirm that a Fed hike is on course for next week

Written by Ian Dobbs on December 6th, 2016.      0 comments

2:30pm(NZT)
Overview
Focus for this week is on Thursday’s ECB meeting which looks set to see an extension of the current quantitative easing (QE) beyond March 2017, especially in light of the recent increased political uncertainty on the continent. Last week was one of consolidation for the greenback which concluded with the release of the November Nonfarm payrolls report on Friday. The data was mildly disappointing given the downwards revision to October’s headline number, although it was the 0.1% m/m decline in average hourly earnings that was perhaps most underwhelming. Despite the data there was sufficient strength in the numbers to see the market place a 100% probability on a Fed rate hike next week.
 
 
Australia
Last week was relatively uneventful for key news coming out of Australia. Focus which was on the weak business investment data for the third quarter and the sharp fall in building approvals ensured that any bounce-back rally against the greenback was muted. New home sales which disappointed after they fell to two years lows were accompanied by a ~25% drop in apartment approvals. The fall comes as a huge excess supply of apartments looms in the three key largest Australian cities. Positives came from the retail sector which posted its third monthly consecutive gain (beating expectations) and the rebound in the manufacturing conditions PMI. Gains in commodity prices also point to the likelihood of an end in the Australian income recession. In focus this week is today’s RBA cash rate announcement (expect no change) and tomorrow’s third quarter GDP data. Trade data on Thursday and housing finance numbers on Friday will also be of some interest.


New Zealand
The left field announcement of a resignation from National Party leader and current NZ PM John Key sent the NZ dollar lower in trade against the greenback yesterday. Sentiment for the week had already started on a soft tone on the back of news out of Europe on the Italian referendum which saw voters opt against the proposed constitutional reforms and PM Matteo Renzi resign during an address to the nation. Last week contained little local fresh news of any note. ANZ business confidence eased in November from the month prior. Declining export prices pushed the terms of trade into a further deterioration during the third quarter. The NZ Financial Stability review raised the prospect of debt to income ratios being introduced into housing market lending should it be required, although further macro prudential measures aimed at cooling the housing market could be a political hot potato heading into an election year, especially after yesterday’s Government leadership news. Expect a heavy Australian influence this week with the RBA today and Australian GDP tomorrow. Local leads include the overnight GDT dairy auction and a speech from RBNZ Governor Wheeler tomorrow.
 

United States
Comments from Fed officials overnight which were supportive of less accommodative Fed monetary policy and better than expected US ISM non-manufacturing data could not prevent the dollar from declining in trade overnight. Data last week was also positive and points to a Fed that will hike rates later this month. Dominating the week was Friday’s Nonfarm payrolls employment number which printed largely in line with expectations for November, although a downwards revision to last month’s read and a decline in average hourly earnings meant the data was mildly disappointing. The unemployment rate fell to 4.6% on the back of a decline in the participation rate. Other key data included an upwards revision to the Q3 GDP, strong consumer confidence numbers and a better than expected manufacturing ISM. Further positives came from the Dallas Fed and the Chicago PMI (both are manufacturing indicators) although pending home sales disappointed slightly. This week is set to be a quieter one with Michigan consumer sentiment on Friday. Trade and factory orders data are due later today.
 

United Kingdom
Demand for the sterling remains solid in trade ahead of this week’s UK Supreme Court case which will consider the appeal made by UK PM May regarding last month’s High Court decision that only parliament had the right to trigger Article 50 of the Lisbon treaty. The results of the decision may not be known until next month. The market’s view on the lack of authority of PM May to trigger the Article has been taken as an indication that a ‘hard’ Brexit may be in the end be watered down. Recent data has also provided support for the GBP. Positive releases last week came via stronger than expected Mortgage Approvals and consumer credit numbers, the latter being the best since 2005. Better than expected reads also came from yesterday’s November services PMI and Thursday’s construction PMI, although the earlier manufacturing PMI eased against expectations of a small rise. Focus for this week includes trade and construction data on Friday, although manufacturing and industrial production numbers tomorrow should pack the most punch.
 
 
Europe
News that confirmed Italian voters had chosen to vote against the proposed constitutional reforms in the Italian referendum sent the Euro crashing to 20 month lows in early trade yesterday. The size of the ‘no’ vote surprised, although markets quickly moved on from the vote and sent the Euro sharply higher in trade overnight. The Austrian Presidential election at the weekend was won by the Green Party candidate who won 53.3% of the vote compared to 46.7% for the far rights (and anti immigration) Hofer. Data last week had little influence on trade in the Euro. German November harmonised inflation was flat which undershot expectations and further disappointments came via the business climate index, the euro zone services sentiment indicator and the business and consumer survey. November manufacturing PMIs upside surprises came from Spain, Italy and France, although the German read marginally undershot the consensus. Euro zone reads included yesterday’s services and composite PMIs which marginally disappointed and last week’s manufacturing PMI which met expectations. Euro zone Q3 GDP and German factory orders are in focus today, although most attention will be on Thursday’s ECB meeting which looks set to see the ECB extend QE beyond the present March expiry.
 

Japan
Trade in the JPY has been mixed this week after initial gains on ‘flight to safety’ demand. These gains after the Italian referendum results yesterday, were unwound on the back of better than expected US data overnight. Data last week was second tier and had very little impact on trade. Included in the releases were household spending numbers which disappointed on the October monthly read. Unemployment at 3% was in line with expectations and unchanged from September although the latest job-applicant ratio did manage a minor improvement. Further positives came from retail sales which fell only marginally in October against the over 1% decline expected, housing starts which rose 13.7% year-on-year and industrial production which edged higher in its latest monthly print. Data this week started with soft household confidence numbers released yesterday, although Thursdays Q3 GDP numbers look set to get the most attention.
 

Canada
The Canadian dollar reached highs not seen in six weeks against the greenback overnight. Sentiment remains strong after last week’s OPEC output cut decision which sent oil soaring above the $50 mark. Data on Friday added to the gains as the economy added jobs for the fourth straight month in November. The 10.7k job addition was well above the 20k loss of roles expected. The unemployment rate which fell to 6.8% was a five month low. Other data last week included better than expected Q3 GDP numbers and stronger than expected industrial and raw material product prices for October. Attention this week will be on Wednesdays Bank of Canada (BoC) monetary policy meeting. Last week’s data has reinforced expectations that the BoC will keep interest rates on hold this week after they said in October that they had actively considered cutting for the third time in two years. Other data includes October trade numbers and the Ivey PMI today.
 
 
Economic Events.
  • Japanese Household Spending, -1% m/m vs. 0.1% exp. (Oct.)
  • Australian HIA New Home Sales, -8.5% m/m vs. 3.8% prior (Nov.)
  • UK Mortgage Approvals, 67.52k vs. 65k exp. (Oct.)
  • US Q3 GDP, 3.2% vs. 3.0% exp.
  • Japanese Industrial Production, -0.1% m/m vs. 0.1% exp. (Oct.)
  • Australian Private Sector Credit, 0.5% m/m vs. 0.4% exp. (Oct.)
  • EU Core Inflation, 0.8% y/y as exp. (Nov.)
  • Canadian GDP, 0.3% m/m vs. 0.1% exp. (Sep.)
  • US ISM Manufacturing PMI, 53.2 vs. 52.2 exp. (Nov.)
  • Australian Retail Sales, 0.5% vs. 0.3% exp. (Oct.)
  • Canadian Employment Change, 10.7k vs. -20k exp. (Nov.)
  • US Nonfarm Payrolls Employment, 178k vs. 175k exp. (Nov.)
 

Economies of Note - 1st December

Written by Ian Dobbs on December 1st, 2016.      0 comments

12.00pm(NZT)
Australia
It has been a relatively quiet week of trade in the Australian dollar this week which has seen much of the early week gains against the US dollar relinquished in trade overnight (despite higher oil on the OPEC agreement). The recent underperformance was not helped by building approvals data yesterday which fell by 12.6% in October (+2.0% exp.) which followed up on the back of September’s sharp 9.3% decline. The fall cemented talk of a peak in the current cycle and included a huge 24.8% fall in apartment approvals. The data comes as the ANZ CEO warned yesterday over the large excess supply of apartments in Australia’s three largest cities. New home sales released on Tuesday were also disappointing and fell to two year lows in October. Private sector credit numbers which marginally edged expectations has been the only positive so far. Capital expenditure/business investment data will form the focus for today whilst tomorrow we see the release of October retail sales.
 

New Zealand
This week has been a relatively uneventful one for fresh data in NZ. ANZ business confidence released yesterday eased in November to a net 20.5% (from 24.5%) of firms who were optimistic about the economy. All sectors noted reduced accessibility to credit, although the second fall in as many months does little to suggest against an economy which remains on an upwards path given the strong employment intentions, own-activity and profit outlook in the survey. Terms of trade data released this morning showed a deterioration in the third quarter from the quarter prior. The NZ Financial Stability review was not market moving, although contained further discussion around debt to income ratios being introduced in 2017 should the housing market fail to slow. Finance Minister Bill English wouldn’t comment on whether the government would approve the restrictions if the RBNZ was to request their use. Building consent and visitor arrivals data will conclude the week tomorrow. Expect little impact with direction to come from the US data and USD sentiment.
 

United States
This week has been one of consolidation so far for the US dollar after the large gains of recent weeks. Key data kicked off with the Q3 GDP numbers which were revised higher to 3.2% (3.0% exp.) on the back of a lift in personal consumption. Consumer confidence lifted strongly on the back of the Trump election victory and also easily beat expectations. Earlier the Dallas Fed Manufacturing Activity Index survey had also beat expectations, also by a wide margin. Comments from corporates indicated optimism around the new government, a view which mirrors the pick-up in confidence amongst consumers. ADP employment data also easily beat expectations and has set the market up for high expectations on the Nonfarm payrolls employment data tomorrow. Other data has included the Chicago manufacturing PMI which also outstripped its consensus and pending home sales which marginally underperformed. In focus later today will be the key ISM Manufacturing PMI indicator.
 
 
United Kingdom
It has been a relatively quiet week in the UK this week which has seen much of the focus so far centre on the overnight BoE Financial Stability report. The report noted the rise in US market interest rates post the Trump win which Governor Carney said could lead to a destabilizing (sharp) move higher in global borrowing costs. The risks of reduced global trade to emerging market economies with high debt was also aired. On Brexit Carney repeated his view over the lack of clarity around the formal exit talk priorities which could force banks to move operations out of the UK prematurely. Data released so far has included stronger than expected Mortgage Approvals which reached the highest levels seen since March in the latest read. Consumer credit which posted an annual growth rate of 10.5% last month was the strongest since October 2005, according to BoE data released on Tuesday. Focus to conclude this week will be on house price and manufacturing PMI data later today. Construction PMI data will follow tomorrow. The services PMI read is set for release on Monday.
 
 
Europe
It has been a busy week of data in Europe so far, although the mainly lower tiered releases have had little influence on trade in the Euro which has sidetracked against the US dollar for most of the week. German harmonised inflation, which was flat in November disappointed, although the euro zone and Italian reads conformed to the market’s expectations. Disappointments came via the euro zone services sentiment indicator, the business climate index, and the business and consumer survey. German unemployment remained level at 6% as the number of unemployed fell just 5k in November (on expectations). Comments from ECB President Draghi noted the uncertainty posed by elongated Brexit talks and forecasts for euro zone inflation which is forecast to reach the 2% ECB target by 2018/19. Manufacturing PMI indicators form the focus for today whilst next week sees the release of the service and composite PMI reads on Monday.
 

Japan
The small recovery in the yen seen at the start of the week against the greenback proved short lived after it fell to fresh lows not seen since the start of March overnight. The move reflects a continuation of the sharp trend which has been seen as investors have deserted the relative safety status of the yen in favour of the US dollar which looks set to benefit from higher interest rates and fiscal stimulus under the incoming Trump government. Data released in Japan this week started with household spending numbers which disappointed in October, although the year-on-year read which declined 0.4%, was stronger than expected. Unemployment at 3% was on expectations although the job-applicant ratio edged slightly higher to 1.40. Other data included better than expected retail sales and industrial production which marginally beat the (low) estimate. US dollar sentiment will continue to dictate trade into the week’s end. Next week’s Japan focus will centre on the third quarter GDP numbers due on Thursday.
 

Canada
All eyes this week were on the outcome of the overnight OPEC oil producer meeting which concluded in Vienna with the agreement to cap output at 32.5 million bpd, a cut of 1.2 million bpd. The deal will come into effect at the start of 2017 and will last for six months but can be extended. The agreement is subject to a further cut of 600k bpd from non-OPEC producers. Oil prices understandably reacted positively to the news, although the CAD has been surprisingly well contained as rising US interest rates continued to bolster demand for the US dollar. Data released this week has been dominated by the overnight Q3 GDP release that beat expectations as the economy grew 0.9% in the quarter, or 3.5% on an annualized basis. Exports of goods and services drove the strong rebound from the prior quarter. Both of the industrial product and raw material prices indices also outperformed their consensus estimate. Local focus now turns to Friday’s employment numbers. Expect tomorrow’s RBC manufacturing PMI data to garner just a passing interest. Focus next week will be on Wednesday’s BoC interest rate meeting.
 
 

FX Update : US data and OPEC the focus this week

Written by Ian Dobbs on November 29th, 2016.      0 comments

3:00pm(NZT)
Overview
This week is set to be a very interesting one again for the US dollar given the busy data schedule due. Gains in the greenback post the Trump US election win which totalled over 6% at one stage last week have eased this week ahead of a busy data wrap which includes Q3 GDP (today), ISM manufacturing on Thursday and Nonfarm payrolls employment on Friday. Commodity currencies will also be heavily in focus this week, particularly so the CAD as the OPEC oil producers meet in Vienna tomorrow for their much awaited official meeting to agree a production cap limit and individual country production quotas. An agreement (or lack of) looks set to usher in a period of considerable oil price volatility over the weeks ahead. Expect the volatility to flow through to the key oil country currencies like the CAD and NOK when the results become known later in the week.
 

Australia
Last week was largely uneventful for data of note out of Australia. Gains for much of the week were helped by an improvement in the price of many commodities key to Australia. Data released during the week included September quarter construction activity numbers which fell by more than expected and contributed to a year-on-year drop in construction output of over 11%. Consumer confidence eased in the latest week according to the ANZ/Roy Morgan survey. Assistant RBA Governor Kent presented a relatively upbeat view on the economic outlook which echoed that of Governor Lowe the week prior. In focus this week are numbers on new home sales, building approvals and private sector credit (loans outstanding) tomorrow. On Thursday we have numbers on home prices and private capital expenditure/business investment which will be followed by retail sales on Friday. A keen eye should also be kept on the outcome of the OPEC oil producer meeting which will conclude towards the end of the week.
 

New Zealand
Last week was a relatively quiet week for important incoming data. Core retail sales for the third quarter disappointed by rising just 0.3% q/q versus the 1.1% forecast. Migration data showed the number of incoming migrants reaching fresh highs of over 70k in the latest year. Rising exports helped the October trade balance improve, although the marginally better than expected deficit for the month had no impact on trade. Some profit taking on the greenback has helped the kiwi lift slightly in trade so far this week. US dollar sentiment looks likely to again drive trade during the week, although the outcome of the OPEC oil producer meeting could incite volatility in the commodity linked currencies. Local events to watch are mainly tomorrow and include building consents, ANZ business confidence and a speech from RBNZ Governor Wheeler. Expect Thursday’s terms of trade data to create little more than a passing interest.
 

United States
US economic data releases remained solid again last week. Stronger than expected data included results from the Markit Nanufacturing Conditions PMI, consumer sentiment, existing home sales and durable goods orders. Underperformance was observed in the goods trade balance, the services PMI and new home sales, although these releases were low ranking and gained no market traction. The Fed minutes affirmed that rates will rise next month (barring a financial calamity) and that risks to the near-term economic outlook were evenly balanced. Focus this week starts with Q3 GDP and consumer confidence today. Key indicators later in the week include the ISM manufacturing PMI on Thursday and Nonfarm payrolls employment on Friday where expectations are for a gain of around 175k jobs in November.
 
 
United Kingdom
The sterling has started the week on a poor footing after falling in trade overnight (despite a weak US dollar) on the back of comments from the BoE which reiterated that it would look past the first round inflation impacts from the GBP depreciation. Comments from ECB President Draghi that the UK would suffer first if protectionist policies were introduced with the Brexit also weighed on sentiment. Last week contained little data of interest outside of Friday’s revised Q3 GDP report. The 0.5% q/q result was in line with the preliminary estimate (and expectations) and included gains in exports and better than expected business investment numbers which points to a BoE that will keep interest rates on hold. Other data included the CBI industrial trend and distributive trades surveys which both outperformed expectations. Consumer credit expanded at rates near 10-year highs and mortgage approvals lifted to five month highs. This week’s focus includes today’s mortgage and credit data, nationwide house prices and the BoE Financial Stability Report (tomorrow). Manufacturing and construction PMI indicators are due on Thursday and Friday respectively.
 

Europe
It was a relatively quiet week for data in Europe last week. Euro zone business condition PMIs lifted further in November to levels which are consistent with a pick-up in GDP growth to around 2%. The German IFO was unchanged and German GDP growth slowed to half of that seen in the quarter prior. Consumer confidence rose to -6.1 from -8 and was the strongest reading since December last year. Interest remains high around this weekend’s constitutional reform referendum in Italy which could lead to early elections and a rise in support for the populist Five Star Movement (a party which has pledged to have a referendum on whether Italy should remain in the euro area). Reports from the Financial Times indicate that up to eight banks might fail due to an inability to refinance if the PM loses the referendum. Data of interest this week includes various business and consumer climate indicators, regional inflation/GDP reads, euro zone inflation and manufacturing PMI indicators.


Japan
Last week was a relatively quiet one for local influences of note in Japan. This saw the yen continue its recent trend of losses against the US dollar which accelerated after the Trump US election win, although news of a vote recount in 3 key battleground US states has seen the USD/JPY ease in trade this week. Data released in Japan last week included the manufacturing PMI indicator which dipped slightly in November, although current levels still remain above those seen in the middle of the year. Inflation lifted, although the core level remained very weak at just 0.2% year-on-year. Trade numbers released on Monday were mildly disappointing as exports deteriorated. Data this week started with numbers on household spending today which underperformed expectations in October and unemployment which remained steady at 3%. Industrial production will be released tomorrow although expect US dollar sentiment to dictate.
 

Canada
This week in Canada will be all about the outcome of the OPEC oil producer meeting in Vienna which is scheduled to conclude on November 30. Considerable volatility in oil pricing is expected after the announcement. This has oil bulls hoping for a move to cap output around 32.5 million barrels per day (bpd) versus the current 33.64 million bpd output. Details of individual country quotas were also promised to be finalized at the meeting. Canadian data released last week includes underwhelming wholesale sale numbers and on consensus retail sales for September. Economic data scheduled for release this week starts with current account data today. GDP and raw material/industrial product prices are due tomorrow and will be followed by employment numbers on Friday. Manufacturing PMI data on Thursday will be of little interest.
 

Economic Events.
  • Canadian Retail Sales, 0.6% m/m as exp. (Sep.)
  • US Existing Home Sales Change, 2% m/m vs. -0.5% (Oct.)
  • Australian Q3 Construction Work Done, -4.9% vs. -1.7% exp.
  • EU Markit Manufacturing PMI, 54.1 vs. 53.3 exp. (Nov.)
  • US Durable Goods Orders, 4.8% vs. 1.5% exp. (Oct.)
  • US New Home Sales Change, -1.9% m/m vs. 0.3% exp. (Oct.)
  • Japanese Nikkei Manufacturing PMI, 51.1 vs. 51.7 exp. (Nov.)
  • German IFO - Current Assessment 115.6 vs. 115 exp. (Nov.)
  • NZ Trade Balance, -846M m/m vs -1394M prior (Oct.)
  • Japanese Inflation, 0.1% y/y vs. -0.5% prior (Oct.)
  • UK Q3 GDP, 0.5% q/q as exp.
 

Economies of Note - 25th November

Written by Ian Dobbs on November 25th, 2016.      0 comments

2:45pm(NZT)
Australia
Firm commodity prices have helped the Australian dollar buck the trend of a stronger US dollar in trade this week. Among the strongest commodity performers has been copper which is on track for its best monthly gain in over a decade (over 20%). Iron ore prices also remain well supported. Local data releases included Q3 construction work done which fell by more than expectations. The fall followed a decline in the quarter prior and was the fastest pace of decline since Q3 2000 as output fell across all categories, notably non-residential and building. Year-on year construction output has fallen by 11.1%. ANZ/Roy Morgan Weekly consumer confidence fell in the latest week to 115.5 (from 118.2), although the low ranking data this week has had no real influence on trade. Releases next week include indicators on new home sales, building and private house approvals and housing/private sector credit data. These releases will be followed by data on capital expenditure and retail sales.
 

New Zealand
It has been a quiet week in NZ which has seen the kiwi continue to be placed under pressure via further strong gains in the greenback. Data received over the week started with Q3 retail sales on Monday which rose by 0.9% on a seasonally adjusted basis.  The number was well down on the quarter prior, core sales were also well down and easily missed expectations. Migration data reached a new record in the year ended October of over a 70k net gain in migrants. Trade data released this morning for October showed a deficit of 104 million less than that expected for the month on the back of improving export numbers. Interest next week starts on Wednesday with building consents and ANZ business confidence.
 

United States
The recent trend of US dollar strength has continued again in trade this week. Data has again been strong overall. Existing home sales rose to highs not seen since 2007. The 2% lift in October easily beat expectations, although the fall in mortgage applications should temper future expectations. Durable goods orders which easily beat expectations added to evidence of accelerating growth in the fourth quarter. Other data included the manufacturing PMI and Michigan consumer sentiment which both also beat their respective consensus estimates, although new homes sales fell against expectations of a small rise. The Fed minutes backed the consensus view that the Fed will move rates higher in December and judged that near-term risks to the economic outlook were roughly balanced. Odds for a further hike by the middle of next year have continued to lift in recent days. Second tier PMI indicators will be expected to have little impact on trade when they are released later today. This will turn focus to next week which starts with GDP numbers on Tuesday.
 
 
United Kingdom
It has been a relatively subdued week of trade for the sterling which saw much of its volatility occur at the start of the week after positive comments from PM Theresa May on the desire for business friendly arrangements in the Brexit negotiations. UK Government forecasts of larger than expected borrowing in the wake of the UK EU exit vote had little influence on trade. Data released so far this week has included CBI industrial trend order numbers which rose from eight month lows. The -3 reading was the strongest since June which beat forecasts and reflected higher expectations for output growth in the next three months. Consumer credit expanded at the fastest rate in nearly 10 years last month and mortgage approvals were seen reaching five-month highs. Focus today will be on Q3 GDP numbers and business investment data for the same period.


Europe
Demand for the US dollar has continued to overwhelm the Euro in trade this week. Data of note started on Wednesday with PMIs which rose and beat expectations in the eurozone across the entire composite, manufacturing and services series. The French reads also beat expectations, although the German manufacturing and composite reads marginally disappointed. The German IFO came in unchanged and on expectations. Final data for the German Q3 GDP showed growth of 0.2%, half that of the quarter prior. ECB VP Constancio said the ECB would keep its expansionary stance on monetary policy. The financial stability review noted increased political risk and the concerns over euro area banking sector long term profitability. The impact on trade channels and the spill-over effect of changing inflation/interest rate expectations in the US post the Trump election win were also areas of potential concern. The bank reiterated that it doesn’t target the exchange rate, a statement which implies a lack of concern over the Euro’s recent falls.
 
 
Japan
The influence of the surging US dollar has continued to pressure the Yen lower in trade this week. Losses against the greenback have now totalled over 12% since the US Election Day highs. Data released this week included underwhelming trade numbers which were heavily influenced by falling exports. Flash manufacturing PMI data eased on the month prior and failed to reach expectations. The decline was driven by a reduction of growth in new orders although levels remained in expansion territory for the third straight month. Inflation data released today came in on expectations at -0.4% year-on-year at the core level. Looking ahead to next week we receive data on household spending, industrial production and employment amongst other releases.


Canada
The Canadian dollar firmed to reach near-two week highs against the US dollar this week as investors eye the prospect of an output cut by major oil producers at the end of the month and as domestic retail sales posted its best monthly gain since April. The data matched economist forecasts, although the release would have been flat without the inclusion of increased purchases of cars and parts. Wholesales sales released the day prior were disappointing but had no effect on trade. Looking out to next week we have local current account, GDP and employment data to consider although expect most of the volatility to derive from the outcome of the OPEC meeting which is scheduled to conclude towards the end of the week.
 
 

FX Update : US dollar sentiment to be the focus again this week

Written by Edited by Ian Dobbs on November 22nd, 2016.      0 comments

2:30pm(NZT)
Overview
Interest this week will again be on the impressive performance of the greenback which has posted fresh highs this week that have not been seen in over 13 ½ years. The gains in the USD index have reached over 5.8% from the lows reached on US Election Day and reflect a growing consensus that the incoming Trump led government will usher in a period of notably higher interest rates on the back of fresh fiscal policy initiatives. This has helped expectations lift for a December rate hike from around 80% prior to the election to near 100% presently. Directives for the US dollar this week include the FOMC minutes on Wednesday and economic indicators which includes durable goods, existing home sales, PMI manufacturing and consumer sentiment.
 
 
Australia
Strength in the US dollar, which reached highs not seen in over 13.5 years, helped pressure the Australian dollar to falls of around 2.8% in trade last week. Weakness in iron ore and gold were also contributors although the market was also unimpressed with labour market and wages data which failed to show any hard evidence of a reduction in slack in the labour market. Wages growth of 1.9% year-on-year in Q3 was a record low and despite a rebound in full-time job positions in October, the trend remains one of weakness and very high underemployment. Risks from this trend are a lower inflation out-turn than that expected by the RBA especially when viewed with a slowing in the housing sector (as rising bank funding costs pressure mortgage rates higher) and strong AUD. Minutes from the RBA and a speech from Governor Lowe indicated that the RBA is happy to remain on hold for now, although the labour market will continue to be keenly monitored. Looking ahead to later this week where we have CAPEX data on Thursday and RBA talk will be on the radar today.
 
 
New Zealand
Focus last week was again on the US dollar which reached highs not seen in over 13.5 years. This comes as the market continues to buy the story of higher US inflation under the incoming Trump government. Local interest included the assessment of the economic cost of the Kaikoura earthquakes, which experts now expect to top $NZ5 billion. GDT dairy prices rose again last week (+4.5%) and have now gained over 40% since August. The gains saw Fonterra lift its 2016/17 payout forecast to $6.00/Kg. The delayed retail sales release received yesterday saw seasonally adjusted retail sales lift 0.9% in the third quarter, down from the June quarters 2.2% rise. Motor vehicle and parts retailing posted the largest rise. Focus this week will again be largely on international developments including the FOMC minutes on Thursday morning (NZ time). Local trade data on Friday should garner little more than a passing interest.
 
 

United States
The US dollar continues to be in heavy demand in trade this week. Trade last week was heavily influenced by the prospect of higher inflation under the incoming Trump government. Further support has come from Fed official comments which are indicative of a rate hike next month and a Fed which is keenly awaiting the details of the Trump fiscal package. Data last week was largely solid. It included retail sales which were stronger than expected in October and revisions to September which were also positive. Housing starts were exceptionally strong, although industrial production and producer prices both disappointed. Headline inflation continued to lift as the impact of falling energy prices drops out of the calculation, although core inflation was weaker than expected. Fed Chair Yellen indicated that rates will rise “relatively soon” although continued to highlight that the process would be gradual. Focus this week will be on Wednesday’s FOMC minutes. Indicators of interest start with existing home sales (today) and a host of data tomorrow which includes durable goods, new home sales, and Michigan consumer sentiment (amongst others).
 
 
United Kingdom
This week has started well for the sterling after it jumped in trade yesterday on the back of comments from PM Theresa May which spoke of a desire for a UK business friendly arrangement with the EU in the coming Brexit negotiations. Last week was a busy one for local data which included key indicators on employment, inflation and retail, although it was the strength in the US dollar which was the main driver of GBP trade. Numbers started with inflation data which disappointed, albeit were viewed as largely temporary. Unemployment fell to 11 year lows in the three months to September, although unemployment claims disappointed. Retail sales were strong and reached their highest levels since April 2002. This week is a relatively quiet one in the UK which starts with industrial trend orders numbers today. BBA mortgage approvals feature on Thursday, although most of the interest will lie with the third quarter GDP numbers on Friday.
 

Europe
Sellers which dominated trade in the Euro last week continue to hold sway in trade this week. Demand for the US dollar, which was the driver last week, comes as investors eye the loose ECB monetary policy and increasing expectations of US rate hikes. Geopolitical focus is also high as the market eyes the upcoming Senate referendum in Italy and Austrian presidential election, both of which have been adding to the anxiety around their respective EU membership (especially the former). Data last week included a smaller than expected fall in industrial production and GDP numbers which were in line with expectations (1.6% year-on-year). Both the Eurozone and German ZEW index of economic sentiment improved. These when combined with the improving business conditions PMI’s should support a lift in growth down the track. Focus for this week will be on various PMI indicators tomorrow and the German IFO business climate index on Thursday.
 
 
Japan
The weakness that was seen in the Yen against the greenback has continued in trade this week. Losses from the beginning of last week have reached around 4% in trade overnight. Data last week included Q3 GDP growth that surprised on the upside which was helped by strength in exports, housing investment and public spending. Better than expected industrial production numbers did little to curb the losses against the US dollar. Trade data released yesterday which was disappointing was driven by a larger than expected decline in exports which fell 10.3% year-on-year. The decline was the 13th consecutive monthly drop, although the recent sharp falls in the Yen should help to reverse this trend. Other focus last week was on the Bank of Japan’s yield curve management operations which are aimed at capping JGB yields at zero, a directive which has amplified the recent downwards pressure on the Yen. Expect most of the direction this week to come from offshore. Local data of interest includes the manufacturing PMI indicator on Thursday and inflation data on Friday.
 

Canada
Demand for the Canadian dollar remained robust in trade last week , despite the considerable strength which was seen in the greenback. The rebound in the price of oil that was seen early in the week helped has continued in trade so far this week. The gains of over 14% since last week’s lows come as OPEC experts make progress in preliminary meetings ahead of the Vienna Nov 30th official meeting. Comments from Russian President Putin added to the air of confidence that an agreement could be reached. Putin added that Russia was ready to freeze output at the current level. Local influence on trade was lacking last week. Inflation numbers for October were largely in line with expectations although the decline in September manufacturing sales from August was less than expected. Wholesale sales which disappointed in trade overnight had no impact on trade. Focus for today is on data from the retail sector although look to oil and Wednesday’s FOMC minutes for direction.
 
 
Economic Events.
  • Japanese Q3 Annualised GDP, 2.2% vs. 0.9% exp.
  • Japanese Industrial Production, 1.5% y/y vs. 0.9% prior (Sep.)
  • EU Industrial Production s.a., -0.8% m/m vs -1% exp. (Sep.)
  • UK Inflation, 0.9% y/y vs. 1.1% exp. (Oct.)
  • German ZEW survey - Economic Sentiment, 13.8 vs 8.1 exp. (Nov.)
  • NZ GDT Dairy Index, +4.5% vs. +11.4% prior.
  • UK Claimant Count Change, 9.8k vs. 2k exp. (Oct.)
  • UK ILO Unemployment Rate (3M), 4.8% vs. 4.9% exp. (Sep.)
  • Australian Employment Change s.a., 9.8k vs. 20k exp. (Oct.)
  • EU Inflation, 0.2% vs. m/m 0.3% exp. (Oct.)
  • US Inflation, 0.4% m/m vs. 0.3% exp. (Oct.)
  • Canadian Inflation, 1.7% y/y vs. 1.8% exp. (Oct.)
 

Economies of Note - 18th November

Written by Ian Dobbs on November 18th, 2016.      0 comments

2:30pm(NZT)
Australia
The dual influence of continued strength in the US dollar and weakness in key commodity prices (iron ore and gold) has seen the Australian dollar lose ground against the greenback this week. Local focus included Tuesday’s RBA minutes which had an upbeat tone around inflation and noted a positive outlook for growth given the recent improvement in the terms of trade. The main area of concern was around the labour market and lack of clarity over the amount of slack in the job market. The board noted the high level of part-time job creation and wages data this week pointed to record low wages growth, which has been partly a result of the recent divergence between full-time and part-time job creation. Employment data released yesterday was mixed. The gain in full-time positions (42k) partially reversed last month’s sharp fall, although the data did little to hide the loss in momentum of jobs growth which has halved since mid year to around 1%. Year to date employment has risen by only 43k overall.


New Zealand
It has been a relatively uneventful week in NZ for fresh incoming economic leads. News focus has centred on the impact and evacuation of tourists from the Kaikoura region after Monday’s large magnitude 7.8 earthquake. The earthquake also led to the delay of the main data of the week, which was the third quarter retail sales release after the Stats NZ building was seriously damaged in the shake. Influence on trade has once again largely come via the US dollar which has continued to gain this week on the back of expectations of a more growth friendly US fiscal policy under the Trump leadership. Local leads included the GDT dairy auction which posted another gain of 4.5% overall. Whole milk powder prices rose a smaller 3.2%. The latest move comes on the back of the 11% rise in the previous auction. Prices have now gained by over 40% since August. October REINZ house price data showed a 10.9% gain year-on-year, although sales fell sharply from the month prior and the same month a year earlier. Next week see the (delayed) retail sales data, immigration and trade numbers released.
 

United States
The tail-wind of the Trump election win has continued to drive the US dollar higher in trade this week. The move comes on the prospect of an expansionary fiscal push by the incoming government in 2017. This when combined with comments from Fed Chair Janet Yellen have helped the market move to near a unanimous expectation for a hike in December. Yellen’s testimony to the Joint Economic Committee included remarks that the election result hadn’t changed officials’ views that the case for a rate increase had strengthened since their last meeting, although she noted that it was too soon for the Fed to change its view until greater clarity on the new fiscal landscape was evident. Data released during the week included housing starts and permits for new construction which rose in October. The 25.5% monthly housing start gain was the largest in more than three decades. Inflation which increased at the fastest rate in two years from the year prior in October is a sign that inflationary pressures in the economy are building. Producer prices and industrial production came in flat (Oct.) and were both below expectations. Retail sales beat expectations and included upwards revisions to the previous month. Watch for further Fed speak today and data to start next week with existing home sales on Wednesday.
 

United Kingdom
This week has been a busy one for fresh data in the UK. Key releases started with October inflation numbers which were weaker at both the headline and core level. The 1.2% year-on-year number was 0.2% under expectations, although the market viewed the result as temporary given the one-off factors and recent plunge in the sterling. Data on the labour market showed UK unemployment falling to 11-year lows (4.8%) in the three months to September. Employment remained at a record highs, although the number of people who claimed unemployment benefits rose in October. The number was more than expected and the largest rise since May. Retail sales for October rose at their fastest rate in 14 years and jumped 1.9% from the month prior. Colder weather which boosted clothing sales and Halloween sales at supermarkets helped drive the result. Focus next week will be mainly on Friday when we receive numbers on the third quarter’s GDP and business investment.
 
 
Europe
Further gains in the US dollar have continued to apply pressure on the Euro in trade this week. The move comes as the market prices in the potential for more aggressive Fed rate rises post the Trump election win at a time where the ECB pursues an ultra-loose monetary policy. Local data this week included a smaller than expected monthly decline in industrial production and on consensus Q3 GDP data across the eurozone. German ZEW economic sentiment improved by more than expected in November. The rise to 13.8 was the highest level seen since June. The eurozone read also lifted, although the outperformance above expectations was more modest. Eurozone trade data for September outperformed and October headline inflation at 0.5% year-on-year was in line with expectations, although the monthly read was slightly under consensus. Focus to end the week is on further talk from ECB president Draghi today, whilst next week’s releases start with German PMI indicators on Wednesday.
 
 
Japan
Strength in the US Dollar has meant that the Yen has continued to decline in trade against the greenback this week. Data released during the week began with the Q3 GDP and industrial production numbers which both beat their expectations. The GDP result was driven by a surge in trade on the back of stronger exports although weak import numbers highlight soft domestic demand. Flat business investment also points to concern over future growth. Further Yen weakness was seen in recent trade after the BoJ announced its first fixed rate operation to buy JGBs in an unlimited quantity in the 1-5 year maturity in an effort to control the yield curve. The move which is part of a new initiative announced in September is aimed at countering a flattening yield curve, which it maintains is having a negative effect on the economy as low long term rates point to a weak inflation outlook. Looking ahead to next week we have trade data on Monday and inflation numbers on Friday as the key indicators of interest.
 

Canada
With no local leads of note the Canadian dollar has again looked mainly to the energy markets for direction this week. Oil prices jumped during the week on the back of reports that several OPEC members were actively engaging in last minute talks to overcome divisions ahead of its official meeting on November 30th. The lift helped the CAD trade off its recent lows after it had been under persistent selling pressure after the Trump US presidential win. Local key data focus for the week is on today’s inflation numbers. Earlier numbers on manufacturing sales showed a slowing in September from the month prior although the data was stronger than expected. Strength in the transportation equipment sector drove the result. Indicators of interest next week include September wholesale and retail sales although expect the US dollar and energy markets to be the key drivers once again.
 
 

FX Update : Trump election win propels the greenback

Written by Ian Dobbs on November 15th, 2016.      0 comments

1:45pm(NZT)
Overview
The prospect of generous tax cuts, elevated government spending on infrastructure and defence and a drive to reduce regulation by the incoming Trump government in the US has ignited the US dollar in recent trade. The move comes as investors eye the likelihood of higher inflation and boosted productivity/growth under the new policy impetus as they eventually gain traction. The Trump win has seen market pricing move to an 85% probability being placed on a Fed hike in December, although the potential exists for many further hikes in 2017/18 should investment markets remain stable and should the policy initiatives have the desired effect. Look to Fed Chair Yellen’s testimony on Thursday for any clues of the Fed’s thinking on the fresh developments and the likely trajectory of policy tightening, although in reality it is far too early in the piece for the Fed to have any strong idea on what will likely eventuate given the lack of clarity around likely policy developments.
 

Australia
Local news took a backseat last week as market focus centred on the gripping US election which saw Donald Trump win the race to be the 45th President of the United States. The surprise victory has seen the US Dollar lift strongly (at the expense of currencies like the AUD) in recent trade on the prospect of higher inflation if Trump moves to implement his policies of large tax cuts and heavy infrastructural spending. There was little domestic news in Australia last week to get the market excited. Housing finance which rose unexpectedly in September was driven by strength in lending to investors. ANZ jobs ads rose by 1%, although the latest business and consumer confidence indicators eased slightly to remain marginally above or around their long term averages. Offshore focus will again play a dominant role in trade this week. Locally look to the RBA minutes today and employment on Thursday for direction as wage prices tomorrow create no more than a passing interest.

 
New Zealand
It has been an eventful last week for the NZ Dollar which at one point sat 4.5% lower off last week’s highs against the greenback in trade overnight. Dominating the news was the surprise win by Donald Trump in the US election which has seen the greenback jump in trade in recent days on the prospect of (inflationary) US tax cuts and infrastructural spending. Further selling pressure in the local currency came last week on the back of a RBNZ cut in the cash rate to fresh lows of 1.75%. Commentary which indicated willingness for intervention to weaken the strong NZ Dollar and to further reduce the cash rate should it be necessary, added to the tone. Dominating the news locally this week has been yesterday morning’s large magnitude 7.5 earthquake in the upper south island. The quake ushers in the prospect of additional billions of NZ government spending in order to restore the damaged infrastructure and housing, although PM John Key has been quick to calm the markets by highlighting the current strong NZ fiscal position. GDT dairy price data tonight is the main local event scheduled this week.

 
United States
The prospect of a large expansionary fiscal push in the wake of last week’s Trump win in the US Presidential election has continued to propel the US Dollar higher in trade this week. The move occurs as the market prices in the prospect of higher US rates (current December hike probability is priced around 85%) and future inflationary pressures on the back of the new policies. This has seen US 10yr yields reach 11 month highs and post gains of nearly 1% from the lows reached a few months ago. Data released last week included a decline in jobless claims and a small rise in business optimism. Mortgage delinquency rates for US households which fell to lows not seen since 2006 come as bank lending standards to households reportedly ease. Michigan consumer sentiment jumped in November and 5-10 years inflation expectations rose to 2.7% from 2.4% previously. Focus this week includes talk from various Fed speakers (including Yellen on Thursday), retail sales (today) and inflation on Thursday.
 

United Kingdom
The gripping US election which formed a key focus in the UK last week came as a welcome relief for many in the wake of the prevailing negative sentiment which has surrounded the UK in the wake of the EU exit vote. The sterling was the only currency we cover to post gains against a strong greenback which rallied on the prospect of higher tax cut and spending driven future US inflation under the Trump presidency. Looming inflation in the UK in the wake of the sterling’s recent drop which has ushered in a potentially more favourable BoE policy backdrop has also provided relief. Data last week included a rise in the latest monthly manufacturing growth and small drop in industrial production. Halifax house prices rose, although the September trade deficit widening was larger than expectations. This week is set to be busy as we receive numbers on inflation and the BoE’s Carney testimony on the November inflation report (today), employment (Wednesday) and retail sales (Thursday).


Europe
The Euro has hit fresh lows for 2016 in trade overnight on the back of the continued strength in the greenback which has gained further as it built on last week’s gains after the surprise win by Donald Trump in the US Presidential election. The moves reflects the focus on the stark policy divergence between Europe and the US, especially in the wake of Trumps win that looks likely to usher in higher US rates and inflation on the back of proposed generous tax cuts and higher government spending on infrastructure and defence. Data from Europe last week which was low impact included an unexpected decline in German factory orders and disappointments in German industrial production and trade. German harmonised inflation which rose at a modest 0.7% year-on-year was in line with expectations. Eurozone industrial production released yesterday and retail sales (last week) both eased by less than expectations. GDP data and ZEW economic confidence indicators form the focus for today, whilst later in the week we get numbers on eurozone inflation and a speech from ECB President Draghi.


Japan
The sharp decline in the Yen against the US Dollar has continued in trade this week. The move has now extended to over 7.25% (from its highs) in the wake of the Donald Trump’s surprise win in the US Presidential election last week. The result has bolstered the greenback on the back of rising US inflation expectations as a result of Trump’s proposed tax and spending policies. Local data last week included numbers on wages growth which remained weak in September and machinery orders which fell by more than expected. Bank lending and the Eco Watcher’s economic confidence index rose by more than expectations and corporate bankruptcies declined by 8% in the year-on-year. This week started with third quarter GDP (+2.2% y/y) and industrial production numbers yesterday which easily beat expectations. Comments from the BoJ Governor Kuroda included an urging to companies to lift wages in line with the bank’s sustained 2% inflation target (labour cash earnings rose only 0.2% y/y last week).
 

Canada
Focus for Canada last week was on the implications for the Canadian economy after the surprise win by Donald Trump in the US Presidential election. One of Trump promises on the election campaign trail was to pursue fairer trade in order to protect US jobs. As President, Trump would have the authority to repeal NAFTA if the terms of any renegotiation aren’t to his liking. Canadian exports to the US under NAFTA were US$325 billion in 2015. Other news included continued weakness in oil prices after the IEA warned of supply growth into 2017 and local data which included housing starts and new house prices which came in around expectations. Building permits fell by more than expectations however (7%), and came largely on the back of a sharp 22% fall in non-residential permits. In focus this week are manufacturing sales tomorrow and October inflation on Friday.
 
 
Economic Events.
  • German Factory Orders s.a., -0.6% m/m vs. 0.3% exp. (Sep.)
  • Australian NAB Business Confidence, 4 vs 6 prior (Oct)
  • UK Manufacturing Production, 0.6% m/m vs. 0.4% exp. (Sep.)
  • Canadian Building Permits, -7% m/m vs. -5.6% exp. (Sep.)
  • Japanese Machinery Orders, -3.3% m/m vs. -0.8% exp. (Sep.)
  • Australian Home Loans, 1.6% vs. -2.0% exp. (Sep.)
  • NZ Cash Rate, cut by 0.25% to 1.75% as exp.
  • German Harmonised Inflation, 0.2% m/m as exp. (Oct.)
  • US Michigan Consumer Sentiment Index, 91.6 vs. 87.5 exp. (Nov.)
  • US Initial Jobless Claims (Nov 4), 254k vs. 260k exp.
  • Chinese Inflation, -0.1% m/m v. 0% exp. (Oct.)
 

Economies of Note - 11rd November

Written by Ian Dobbs on November 11th, 2016.      0 comments

2:30pm(NZT)
Australia
Focus this week in Australia has been on events offshore and the shock win by Donald Trump in the US Presidential election race. The win has undermined market volatility over the week as markets try to ascertain what a Trump presidency will mean for America and US foreign trade/international relations. Initial ‘risk’ on buying which was predicated on a Clinton victory quickly reversed in trade on Wednesday as it became apparent that Trump would win the race, although initial declines in global equity bourses proved short lived. Local news this week has centred on the NAB business confidence and Westpac consumer sentiment reports which both eased in their latest release. Better than expected home lending and a lift in ANZ internet job ads had little influence on trade. Key focus for the week ahead will again be on offshore events whilst locally it will be on employment data on Thursday.
 

New Zealand
Dull early week trade was turned on its face this week after the surprise win by Donald Trump in the US Presidential election. Once again the polls were a poor indicator of the growing discontent amongst voters (noting Brexit) who view themselves as victims of globalisation and find themselves on the wrong end of the ever widening wealth gap. The result saw the NZD fall heavily as the ‘risk on’ theme reversed on Wednesday after it became apparent that Trump would take the presidency. Eyes locally were on yesterday’s RBNZ decision which saw the central bank meet the market’s expectations by cutting rates to fresh lows of 1.75%. Governor Wheeler left the door open for further cuts should they be required and noted the uncertain international outlook and NZ dollar which remains higher than is sustainable for balanced growth. Comments from the deputy RBNZ Governor McDermott saw the NZD come under pressure later in the day. McDermott noted RBNZ concern over the impact of the strong NZ dollar. He noted further that we hadn’t reached the floor on rates and that the RBNZ would cut if needed. Expect more messy trade next week as eyes continue to look offshore for influence. Local data starts with numbers from the retail sector on Tuesday.
 

United States
Politics rather than data have played the dominant role for trade in the US dollar this week. The initial reaction of the markets to the surprise Trump win in the presidential election was to exit the USD in favour of safe haven currencies like the EUR and JPY. A conciliatory tone in his strong victory speech ensured that the USD and financial markets quickly regained their poise however. Market focus on likely US fiscal expansion and less monetary stimulus has supported the greenback in trade post the Trump win. Current pricing for a December Fed hike is around 84%. Data releases this week in the US have been sparse. Jobless claims fell in the latest week although JOLTs job openings for September failed to rise to the level expected. Data focus to end the week is on today’s Michigan consumer sentiment numbers although sentiment after the Trump win will dominate trade. Indicators next week start with data from the retail and manufacturing (NY Empire State) sector on Tuesday.
 
 
United Kingdom
The sterling has been an outperformer in trade this week after market focus has turned away from Brexit discussion to the events across the Atlantic after the surprise Trump win in the US presidential election. Data in the UK this week showed manufacturing growth speeding up in September as factories continued to pick-up from the post-referendum slump. The better than expected 0.6 m/m rise came on the back of strength in drug makers and growth in factory repairs. Industrial production fell against expectations of a small rise which reflected weakness in the oil and gas sector. Halifax house prices gained in October and maintained year-on-year growth of over 5%. Trade data for September showed a larger than expected deficit despite the fall in the pound as lax overseas demand failed to promote export strength. Focus for next week starts with numbers on inflation and producer prices on Tuesday. Employment data is due on Wednesday.
 

Europe
Eyes in Europe have been on the captivating events in the US this week which has seen Donald Trump surprise most by winning the race for the US presidential election. The shock result saw the Euro rally 2.7% to highs near 1.1300 on the back of initial flight to safety demand. Relative calm and a rebound in global share markets after the initial sell-offs has seen safety trades exited after president elect Trump gave a calming victory speech. News out of Europe included numbers on German factory orders which fell unexpectedly. German industrial production and the German trade balance also performed more poorly than expected. Eurozone Sentix Investor Confidence rose and euro zone retail sales fell moderately in its latest read. Focus today will continue to be on the greenback as German inflation numbers create just a passing interest.
 

Japan
The Yen has had an extremely volatile time against the greenback in trade this week which has seen it fall 5.7% from its highs against the USD in the wake of the Trump presidential win. Initial gains were impressive and reached around 101.2 on Wednesday (against the USD) on the back of initial flight to safety demand as the markets began to realise that Trump would take out the presidency. Fears over a rout on financial markets were quickly displaced as markets rallied strongly on the back of a calming conciliatory speech from the president elect. Understandably events in Japan have had little impact on trade this week. Average cash earnings rose moderately in a result which was was in line with expectations. Bank lending grew by more than expectations at 2.4% year-on-year and the September current account surplus was smaller than expected. Machinery orders fell by more than expected in September which reflected the sluggish pace of the global economy and weakness in Japan’s economic recovery. Local focus for next week starts with GDP and Industrial production numbers on Monday.
 

Canada
Canadian eyes were cast across the border at the US Presidential election race this week. The surprise win for Donald Trump has seen the greenback gain post the result given the anticipated policy mix of less monetary stimulus and greater fiscal expansion. The Canadian PM Justin Trudeau said this week that he was willing to renegotiate the North American Free Trade Agreement (NAFTA) (which Trump said he wants to change or scrap) in the wake of the Trump victory. Uncertainty in the markets and supply concerns has kept a lid on oil pricing this week. In its monthly report the IEA said OPEC crude output hit a record in October and it warned that 2017 could be another year of relentless supply growth. Data out of Canada this week included housing starts and new house prices that printed around expectations and a worse than expected fall in September building permits. Local data of interest next week will be led by the inflation numbers on Friday.
 
 

FX Update : US Presidential election the focus

Written by Ian Dobbs on November 8th, 2016.      0 comments

2:30pm(NZT)
Overview
All eyes in the FX markets will be on the outcome of tomorrow’s highly uncertain US Presidential election. Current polling marginally favours a Clinton victory which is viewed as a status quo result and should lead (initially at least) to a rally in the ‘risk’ currencies like the AUD and NZD and an exit from ‘safe haven’ currencies like the JPY. A Trump victory would likely trigger the reverse as investors move to minimise their positioning on currencies which have a high exposure to Trump’s protectionist trade policies. Look for volatility to surge in the coming hours ahead of the result which should begin to be known by around 4 pm NZ time.
 
 
Australia
It has been a quiet but solid start to the week for the AUD which has seen it enjoy gains in overnight trade against the greenback. This came as the markets embraced the risk trades on the back of a lift in confidence that Hillary Clinton would win tomorrow’s US presidential election. Last week was a relatively uneventful one for the AUD. The RBA left interest rates on hold on Tuesday as inflation was seen tracking in line with expectations. Friday’s RBA Statement on Monetary policy also noted inflation and growth expectations which were little changed from three months ago. Data released over the week was mixed. Surging coal prices helped the trade deficit improve and September retail sales had a decent gain, although retail volumes were soft in Q3. Private sector credit was in line with expectations, although home building approvals fell sharply and the Melbourne Institute Inflation Gauge showed low inflation continuing into the current quarter. Focus locally this week starts with today’s NAB business confidence indicator and Westpac consumer sentiment tomorrow, although look for direction to come from the outcome of tomorrow’s US presidential election.
 

New Zealand
This week has understandably started quietly for the NZD ahead of Thursdays RBNZ interest rate decision and tomorrow’s US presidential election result. News yesterday of an error in the Stats department calculation of the recent NZ Q3 inflation release saw the annual rate revised to double that reported previously (0.4% from 0.2%), although the news had little impact on trade. Local leads last week helped the NZD trade higher over the week. They were led by stronger than expected employment growth which rose 1.4% q/q during the third quarter. The number came despite a rise in the participation rate and helped the unemployment rate (4.9%) fall to lows last seen in 2008. The other key news was the strong rise in the GDT dairy auction which rose 11.4% and was driven by a strong jump in whole milk powder prices (+20%). Focus for this week is on political events in the US and Thursday’s RBNZ interest rate decision where market expectations are skewed in favour of a cut in the cash rate to 1.75% given the RBNZ’s key inflation target focus.
 
 
United States
Political sentiment looks set to drive trade in the greenback this week. Markets appear to be pricing a Clinton victory tomorrow, although polling indicates a very tight race. Focus last week centred on the FOMC decision and Friday’s Non-farm payrolls (NFP) employment release. The Fed left rates on hold, although noted a strengthened case for a hike. Friday’s employment data was solid, although failed to budge market pricing on a December rate hike. NFP rose 161k in October (mkt. 175k), although revisions to prior months added 44k. Average hourly earnings rose at a seven year high of 2.8% year-on-year and underemployment fell to eight year lows of 9.5%. Other data included the trade deficit which fell to a 19 month low, a small rise in the ISM Manufacturing PMI and a weaker than expected ISM Non-manufacturing ISM (although it remained strong). Personal spending registered solid growth in September and the services and Markit composite PMIs all easily remained in expansionary territory.
 
 
United Kingdom
Dominating news in the UK last week was the BoE monetary policy meeting and a court ruling on Article 50 (the formal mechanism for leaving the EU). The BoE’s decision to hold rates at 0.25% was expected, although the market was surprised by its shift from its previously strong dovish outlook. The BoE raised their inflation forecast to 2.7% in 2017 (+0.7%) and noted limited tolerance for CPI overshoots which indicates potential policy response ‘in either direction’. Last week’s other key event was the High Court ruling that PM Theresa May cannot invoke Article 50 which sets the scene for a Supreme Court challenge by the government in lieu of more time consuming construction of a full Bill for parliamentary vote on the issue. Data released during the week was dominated by the PMI reads which saw the manufacturing read marginally underperform its consensus and the construction and services reads outperform their respective expectations. Data this week has started with Halifax house prices which lifted above expectations in October, although this week’s UK data focus will be on today’s manufacturing and industrial production data.
 

Europe
This week has seen the Euro ease in recent trade on the back of strength in the greenback after news that the FBI had cleared Hillary Clinton of any crimes in the classified email scandal. Data out of Europe last week included numbers on eurozone growth which continued at a moderate pace of 1.6% year-on-year in the September quarter. Core inflation remained at a low 0.8% (only 0.5% on a headline basis) and unemployment, which sits at 10%, will maintain pressure on the ECB to extend its quantitative easing programme beyond March. PMI data from the manufacturing sector showed a minor expansion across the eurozone and included solid gains in Spain and France and continued strength in Germany. The services and composite PMI reads were more mixed however, and included declines in both across the eurozone led by the ex-German regional falls. Data this week has started with an unexpected fall in German factory orders and lift in eurozone Sentix Investor Confidence. Focus for this week will be on tomorrow’s US election outcome given the light-weight data due in Europe.
 

Japan
The appetite for safety ‘barometer’ of the Yen has been the dominant force in trade this week. This has seen the Yen drop in trade against the greenback on the back of the news from the FBI which has cleared Hillary Clinton on the classified emails (risk on status quo move). The minutes to the September BoJ meeting released yesterday had little impact and noted continued concern from policy makers over the effectiveness and timing of the new policy framework to achieve the 2% inflation price target. Last week saw the BoJ leave policy unchanged at its meeting and reduce its forecasts for inflation. Data released during the week included flat industrial production and disappointing retail sales and household confidence reads. Positives includes better than expected housing starts data and a lift in construction orders. Focus for this week will be on tomorrow’s US election outcome whilst locally we look forward to the September current account and machinery orders data (amongst other minimal impact releases).
 

Canada
The Canadian dollar has experienced some relief in trade this week on the back an increased appetite for risk (oil +) after the FBI said no new evidence was found to warrant charges against Hillary Clinton. Markets see Clinton as the status quo candidate (vs. Trumps elevated uncertainty). News last week in Canada included August GDP which came in line with expectations. The RBC Manufacturing PMI edged higher in October and the Ivey Manufacturing PMI indicator lifted to its strongest level since January, although neither release stirred the market. Employment data for October was strong, although the lift in employment was all driven by part-time roles as full-time employment fell 23k during the month. The September trade balance was worse than expected after the deficit was seen expanding to a record level, although the one-off import of machinery for an oil project was a key contributor .Local leads this week come in the form of housing and building data which starts later today, although all the interest will be on tomorrow’s US election and fears of a Trump win which would introduce considerable uncertainty in US-Canadian trade.
 

Economic Events.
  • Japanese Industrial Production, 0% m/m vs. 1.0% exp. (Sep.)
  • NZ ANZ Business Confidence, 24.5 vs. 27.9 prior (Oct.)
  • Australian Private Sector Credit, 0.4% m/m as exp. (Sep.)
  • EU Inflation, 0.5% y/y as exp. (Oct.)
  • Australian Cash Rate, on hold at 1.5% as exp.
  • Canadian GDP, 0.2% m/m as exp. (Aug.)
  • US ISM Manufacturing PMI, 51.9 vs. 51.7 exp. (Oct.)
  • NZ GDT Dairy Prices, 11.4% vs. 1.4% prior.
  • NZ Q3 Unemployment Rate, 4.9% vs. 5.1% exp.
  • UK Construction PMI, 52.6 vs. 51.8 exp. (Oct.)
  • US FOMC Interest Rate Decision, on hold at 0.5% as exp.
  • UK Services PMI, 54.5 vs. 52.4 exp. (Oct.)
  • UK BoE Interest Rate Decision, on hold at 0.25% as exp.
  • US Nonfarm Payrolls employment, 161k vs. 175 k exp. (Oct.)
 

Economies of Note - 3rd November

Written by Ian Dobbs on November 3rd, 2016.      0 comments

2:30pm(NZT)
Australia
It has been a relatively quiet week for the Australian dollar this week after the both the RBA and US Fed did little to surprise the market at their respective monetary policy announcements. The RBA’s neutral policy statement did little to change expectations of a rate cut down the track. Governor Lowe indicated he was happy to keep rates on hold for an extended period, in the process noting rising prices in some markets (housing) and unemployment as an indicator of slack in the economy. Data released this week started with numbers on private sector credit which matched expectations and commodity prices which showed a strong gain in the latest monthly read. The AIG manufacturing index rose into expansionary territory in October and was driven by stronger growth in exports, sales and new orders. Focus for the remainder of the week includes today’s trade data and the RBA monetary policy statement (MPS)/retail sales tomorrow.
 

New Zealand
The local currency has been in strong demand this week on the back of yesterday’s bumper third quarter employment data which saw the unemployment rate drop to its lowest in almost 8 years. The 4.9% rate was 0.2% better than expectations and came as the economy created more than 10k new jobs for the month, although population growth meant that growth in wages remains low. The other key event was a strong GDT dairy auction result which rose 11.4% overall. It included a 20% gain in the key whole milk powder price (WMP) which was helped by reduced local supply. Other news during the week was a small gain in building consents in September and a solid ANZ business confidence read which eased moderately from the month prior. Inflation expectations improved slightly but remain low at 1.7%.
 

United States
The greenback has been on the back foot during trade this week. Focus was on this morning’s FOMC decision which saw the Fed leave rates on hold which was in line with market expectations ahead of next week’s presidential election. The Fed noted that the case for a hike had strengthened, although continued to await further evidence on its objectives (of maximum employment and 2% inflation) which barring unforeseen circumstances should lead to a hike in December. Other focus has been on the closing gap in the US presidential election race between Clinton and Trump which has seen the RealClearPolitics average of polls reduce to a 1.7% gap (only) in favour of Clinton. Data this week started with numbers on personal spending and personal consumption expenditure that was in line with expectations. The October manufacturing ISM lifted slightly to 51.9, highlights were a decline in new orders and a rise in employment. ADP employment increased by 147k only (less than expectations), although should do little to change expectations on tomorrow’s Nonfarm payrolls employment (+175k exp.). Other focus will be on the earnings growth indicators and today’s PMI numbers (led by the Non-Manufacturing ISM).
 

United Kingdom
The sterling has had a relatively quiet week so far in the lead-up to today’s BoE monetary policy meeting. Mortgage approvals, which lifted above expectations and consumer lending. which rose by 1.4B pounds in September had no impact on trade. The latest manufacturing PMI data eased from the month prior in a number that was marginally below consensus expectations. The reduction reflected an easing in export orders growth as the weaker pound saw input costs rises to 5 ¾ year highs. The construction PMI read lifted to seven month highs (beating expectations) on the back of rising home building, although slowing forward orders and rising prices for building materials suggest difficulty ahead. House prices which failed to lift in October ended a run of 15 consecutive monthly gains. The weaker than expected read saw annual growth fall to 4.6% which was the slowest annual pace since January. In focus to end the week is today’s BoE monetary policy announcement (no change expected), the BoE inflation report and the services PMI.
 

Europe
This week has been a relatively uneventful one for market moving news out of Europe which has seen the Euro gain on the back of a retreat in the USD. Data releases included weak latest monthly German retail sale numbers and on consensus reads for both the eurozone Q3 GDP and October inflation. Manufacturing PMI data rose moderately across the eurozone in October, whilst on a regional basis the strongest reads came from Spain and France. The German unemployment rate was seen falling further to 6% as unemployment fell by more than expected during the latest month. Focus for the balance of the week will be on tomorrow’s US data (led by employment) whilst in Europe services and composite PMI reads may create some interest.
 

Japan
Attention this week in Japan was on Tuesday’s Bank of Japan (BoJ) announcement which saw the BoJ leave policy unchanged and reduce its inflation forecasts. The bank indicated a desire to maintain “momentum” towards its 2% inflation target (a less clear goal which indicates a reduced likelihood of action in coming months) and acknowledged it had fallen further behind in its timeline to achieve the target. The bank pushed its forecast of achieving the inflation goal out by a year to March 2019. Data this week started with industrial production numbers which flat-lined on soft private consumption and overseas demand. Retail sales and household confidence disappointed, although positives came from the latest housing start and construction orders data. Focus for the balance of the week will be on tomorrow’s US data which is led by the key October employment indicators.


Canada
Continued pressure on the price of oil has once again been the driver of CAD sentiment in trade this week. Prices fell further to lows around $45 WTI a barrel in trade overnight on the back of news of a large unexpected rise in US crude stocks that showed the largest weekly gain since at least 1984. Local news included August GDP data which matched expectations, although July’s numbers were revised marginally lower. The RBC Manufacturing PMI indicator lifted in October and the latest read on industrial product prices showed a larger than expected increase (although raw material prices were weak). Comments from BoC Governor Poloz were on the dovish side but had little impact. Event focus for the balance of the week will now turn to tomorrow’s Canadian and US employment numbers and the Ivey PMI/trade data (much less so).