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Economies of Note - 11rd November

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

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.

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.

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.

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.