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Economies of Note - 10th June

Written by Ian Dobbs on June 10th, 2016.      0 comments

Events in Australia like NZ were dominated by the central rate decision and statement this week. As expected the RBA kept rates on hold at 1.75% and noted that “other areas of domestic demand, as well as exports, have been expanding at a pace at or above trend. The statement lacked any forward guidance and confounded those who may have been expecting a hint of an easing bias in the policy statement. The more hawkish than expected statement saw the AUD continue its advance this week, a trend which has been helped by a positive environment for risk sentiment. Gains have moderated in trade overnight on the back of falls in key commodities which include oil and copper. Local data released this week included a lift in ANZ job ads and housing finance, although the latter failed to rise as much as expected. Finance approvals were seen falling sharply from the month prior. Looking to next week we look forward to the latest employment numbers and indicators on business confidence and consumer sentiment.

New Zealand
The NZD has surged to highs not seen in a year against the USD this week. The catalyst for the latest advance was yesterday’s RBNZ interest rate decision. Arguments for a cut had increased in recent days after the NZDs strong move higher as pundits noted that it may be an opportune time to deliver a surprise cut. Governor Wheeler was seen leaving interest rates on hold at 2.25% however and noted that further easing may be required, a comment no doubt required to prevent further NZD strength.  Wheeler’s statement expressed concern over the pressure that further stimulus (an extra cut) would place on the housing market and noted the limited ability that the RBNZ has in influencing the currency.  Evidence of the limited RBNZ influence is demonstrated by the fact that the NZ TWI is higher now than the level seen prior to the last four rate cuts. Data releases this week have included the Q1 survey of manufacturing which fell from the quarter prior and electronic card retail sales for May which also fell from its prior read, although neither release had any impact on trade. Next week we look forward to Q1 GDP and current account data and the next in the GDT dairy price auction series.

United States
Fortunes for the USD this week have been mixed in what has been a quiet week for key economic releases. This has left the USD languishing after Friday’s poor employment numbers which has seen the market completely eliminate its expectation of a June Fed rate hike and shrink its expectation to just 18% for a move in July. The week started with comments from Fed chair Yellen which dropped any indication (unlike comments prior) on the timing of future rate moves. Data releases included a rise in Q1 unit labour costs and JOLTs job openings. Initial jobless claims were also better than expected (slightly) whilst continuing jobless claims fell by 77k to 2.09 million in the week ended May 28. Looking ahead to later today we have data on Michigan consumer sentiment and expectations. Next week will be much busier with key events including the FOMC meeting, and the latest reads on retail sales and inflation.

United Kingdom
Volatility remains the order of the day for the GBP this week. News on polling on the Brexit referendum continues to have the markets on edge which saw the GBP drop early in the week on the back of polls which indicated a lead for the ‘leave’ camp. Stronger polls for the ‘remain’ camp have induced periods of better demand for the pound throughout the week however. UK data of interest was dominated by the better than expected lift in manufacturing production numbers for April. The industrial production release also outstripped the forecasts whilst Halifax house prices which also rose by more than expected maintained their rate of annual growth at 9.2%. Trade numbers for April improved marginally from the month prior whilst the latest NIESR GDP estimate was sound and improved 0.1% from the previous estimate. Looking to next week we have the next round of UK inflation and employment indicators as the most likely economic events to add to the current high volatility.

It has been a quiet week for the Euro so far this week which saw economic data dominated by a better than expected final estimate for the euro-area Q1 GDP. German and Spanish industrial production numbers topped the consensus as did the latest German trade numbers for April, although none of the events led to any material re-rate in the Euro. This week saw the start of the ECB corporate bond buying programme although it remains unclear whether the measure will help stimulate the broader economy given the structural impediments to sustained growth. Expect a quiet end to the week given the low weight US data and European data which includes numbers on German inflation and French/Italian industrial production only.

Trade in the JPY has been subdued this week although so far most of Friday’s USD inspired gains have been retained. Data of interest included numbers on the Q1 GDP which caused little stir after they rose in line with expectations. Headline growth of 0.5% q/q and 1.9% annualised was aided by a positive revision in business investment. The current account numbers failed to meet the consensus whilst bank lending was seen rising in line with last month’s rise. April machine orders which collapsed 11% from the month prior will provide a negative drag on the Q2 GDP data when released. The latest leading index indicator (a composite of 12 economic indicators) came in lower than expectations although lifted from the level seen in May. Comments from the BOJ deputy governor Nakaso struck a familiar tone as he spoke of expecting price rises to reach 2% in FY 2017 and of the willingness to expand monetary stimulus if needed in order to reach this inflation target.

Sentiment towards the CAD has remained positive this week. Key influences have included the aftermath of a poor US jobs report on Friday and a continued advance in the price of oil which has stabilized above $US50 a barrel in recent trade. Demand for crude has remained strong this week on the back of the news of a larger than expected drawdown in API inventories and on the back of further supply outages in Nigeria. Oil supplies from Nigeria have reached levels not seen in over two decades as the Niger Delta Avengers seek to take control of the country’s oil production and reduce current production to zero in an effort to achieve their goals. Canadian data released so far this week has been largely disappointing after the latest Ivey PMI, housing starts and building permits numbers all fell short of expectations. The only positive note has come from a slightly higher than expected rise in the latest new housing price index although today’s employment numbers may help the weekly data wrap finish on a more positive note.