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Economies of Note - 10th January

Written by Ian Dobbs on January 10th, 2014.      0 comments

The data out of Australia this week has for the most part come in above expectation. None of it has had a big impact on the currency however, which has continued to drift lower after the squeeze up to 0.9000 against the USD at the end of last week. The trade balance on Tuesday came in at a deficit of -118 billion against an expectation of -300 billion. Exports to China are at a record high, and imports have fallen thanks to a weakening AUD. This could well see the series return to surplus over the coming months. Yesterday we got retail sales data that showed some strength printing at 0.7% vs an expectation of 0.5%. We also saw data on building consents and although the headline number of -1.5% for the month was below expectation, year on year the series is up 22.2%. The highlights of next week’s economic calendar will be consumer sentiment figures on Wednesday and unemployment data on Thursday.

New Zealand
It has been another very quiet week for New Zealand economic data, and indeed for the New Zealand dollar. We have seen the release of some second tier data in the form of vehicle registrations and building consents which both came in on the strong side. That is no real surprise with the economy performing very well at the moment. The new vehicle registrations were up 12% in 2013 and overall have risen to a 29 year high. Building consents were up a solid 11.1% on the month, but much of that gain was attributable to apartments. We also got the release of a small business confidence survey that printed at its highest level since the series began in 1999. Next week isn’t going to provide a lot more to digest with only the NZIER business confidence survey and the house price index set for release.
United States
So far this week the news has continued to be positive for the United States. Although Tuesday’s non-manufacturing PMI index came in a touch below expectation, we have seen a good trade balance result since then, and that has caused some economists to revise up their forecasts for fourth quarter GDP. The Fed released the minutes from their last meet yesterday morning and they have supported the view of further tapering to the QE programme. Officials see the benefits of further QE waning, and the risks to financial stability from the programme as growing. This gave the USD a small boost and saw 10 year interest rates back up over 3.0% for the first time since 2011. Officials have also been on the wires this week keen to push the idea that the Fed is nowhere near hitting the brakes on the economy, and that the improving outlook means it is time to ease up on the monetary gas. Although inflation remains subdued, GDP is likely to come in around 3% this year and there is no need for the emergency measures currently being employed. Tonight sees the other key release for the week in the form of the non-farm payrolls report. Expectations are for an increase in employment of around 200k and any result above that will likely lend further support to the USD. Next week we have retail sales, inflation, building permits, and consumer sentiment to draw focus.

This week has seen a mixed bag of data from Europe. On the positive side we have seen better than expected results for retail sales, German factory orders and German unemployment. Eurozone unemployment however has remained unchanged at 12.1%. More importantly however was inflation data which continues to be a concern for the central bank. Core inflation was a touch weaker again coming in at 0.8% from 0.9% last month. President Draghi put on a brave face last night after the ECB’s rate meeting, saying Europe is not heading into the deflationary trap that Japan did in the early 1990’s. The central bank decided to leave rates unchanged and there were no additional measures announced. Draghi did however strengthen the language around forward guidance, stressing the bank will remain accommodative for as long as necessary. He also made it clear the ECB is ready to consider all available instruments to address further weakness in consumer prices. The Euro come under pressure as a result of Draghi’s comments. The one success story of the European bailouts has been Ireland, and this week they returned to the market with a successful 10 year bond sale. But as one country improves, another is starting to ring alarm bells. France has been a poor performer for much of the past year and the latest estimate of debt to GDP puts them at 93.4%, up from 90.2% at the end of 2012. This is a major concern with anything over 90% usually considered unsustainable in the long run. The French audit office says the debt load has reached the danger zone. We may have gone through a period of relative calm in the Euro crisis recently, but it is far from over and France is a country to keep a very close eye on in 2014.

United Kingdom
This week has offered nothing to materially change the current outlook for the UK economy. The service PMI on Monday came in a little below expectation, but it is still at very healthy levels overall. Last night we had trade balance data that came in bang on expectations and this was followed by the Bank of England (BOE) meeting at which they voted to leave interest rates unchanged at 0.5%. There was some speculation the bank may release a statement along with the rate decision, however this turned out not to be the case. All in all it was a very predictable affair and there was little impact on the currency. Expectations are for the UK Pound to continue to slowly appreciate over the course of 2014. The UK economy has built a solid base from which it should continue to expand over the coming year. Unemployment is at a four year low, and falling, inflation is at a comfortable 2.1%, and surveys from across all industries point to further growth. Tonight we get data on manufacturing production, and next week we get the latest readings on inflation and retails sales.

It has been a very quiet week on the data front for the Japanese economy. The only release of note will be leading indicators which hits the wires in a few hours’ time. We did get a speech from Prime Minister Abe who says that there are intensive discussions towards a “wage surprise”. It seems government, business, and labour leaders have been in talks to try and set in motion an upward cycle of wage increases. This sounds great and would be of major importance to the economy, however I suspect that politicians are a lot keener than businesses to implement such a plan. Only time will tell if these discussions lead to something concrete. Next week we get current account data, core machinery orders, and the tertiary industry activity index.

It has been a very interesting week for the Canadian dollar and economy. The pressure on the CAD has been maintained after US bank Morgan Stanley offered a paper stating that they expect the Bank of Canada (BOC) may change to an easing bias on monetary policy as early as this month’s monetary policy meeting. Indeed the Canadian inflation statistics have been low, but that would appear to be a big call. None the less the CAD has been weaker across the board and this will be welcomed by Canadian exporters. BOC Governor Poloz joined the party to offer lip service to the concerns of the inflation numbers, whilst tempering the comments by saying that deflation was unlikely. The data remains downbeat in Canada with the latest trade and PMI numbers underperforming expectations, and focus now moves to the latest employment numbers later on today.