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Economies of note - 11th October

Written by Ian Dobbs on October 11th, 2013.      0 comments

12:00pm (NZT)
After Tuesday’s better than expected business confidence data, Wednesday’s consumer sentiment figures were somewhat disappointing showing a decline of 2.1%. There was limited impact on the currency however, as the market was eyeing the more important employment data released on Thursday. At first glance it looked good with the unemployment rate unexpectedly falling to 5.6% from 5.8%. However on closer inspection it wasn’t so flash. The decline in unemployment was mostly the result of the participation rate declining and the headline increase in employment of 9.1k was below expectations of 15k. Developments in the US will continue to draw global attention over the coming days. However, from Australia we do get the minutes from the latest RBA meeting next week along with data on home loans and motor vehicle sales.

New Zealand
It has been a quiet week data wise for the NZ economy. Tuesdays better than expected business confidence numbers were countered somewhat, by a decline in the manufacturing index on Thursday. The government’s announcement on housing was hardly a game changer, however much Auckland might need the 6000 new homes that are to be built. The only data out next week is inflation figures on Wednesday, so expect developments (or the lack thereof) in Washington to dominate the headlines.

United States
The main news from the US is that there looks to be a temporary solution on the table for the debt ceiling. Talk is that both parties will agree on a six week extension allowing them time to negotiate. This has taken some of the near term event risk away, but it is far from a tidy ending to the whole affair. We now have to see if they can work in reopening the government as part of the deal. We have also had the release of the minutes from the last Fed meeting, but with everything that has happened since then they have quickly become outdated. They did show that the decision not to taper was a very close call. Going forward any potential tapering is certainly off the table until the government gets itself sorted out as the impact of this can only be a negative drag on the economy. President Obama did announce the person to take over from Ben Bernanke at the Fed come the end of January. His replacement will be Janet Yellen. She is viewed as very supportive of easy monetary policy. If anything she is likely to keep policy easier for longer than Bernanke would have. This is mildly negative for the USD over the long run.

This week saw a bit of a mixed bag for data from Germany, the core economy in Europe. Tuesday’s German factory orders unexpectedly showed a decline in August, but on Wednesday we got German industrial production which surprised to the upside. Trade balance data for both Germany and France showed improvement, and the overall takeaway is that the gradual European recovery is still on track. It seems the ECB might have been worried that recent comments from president Draghi on further LTRO’s (long term refinancing operations) could have been misinterpreted, as we have had two separate members of the ECB board state this week that here is no need for new LTRO at the moment. Darghi himself has made a couple of speeches this week but has said nothing of significance. Next week we have Eurozone industrial production, inflation, and current account data, along with German economic sentiment.

United Kingdom
Last week we got continued strong survey readings from the manufacturing, construction and service sectors. All indexes were well into expansionary territory even if they were a touch below expectation. So it was somewhat of a shock when on Wednesday night figures for industrial production, and manufacturing production, showed a decline for the month of August. Industrial output was -1.1% against and expectation of a 0.4% gain. Looking closer the declines were across a broad range of industries which makes it even more difficult to explain. This is the first piece of data to break the consistent run of upbeat indicators in recent months. As a result the GBP came under some pressure. Last night we had the latest BOE policy meeting and it was a very predictable affair. There was no change in the cash rate (still at 0.5%) or the level of QE (still GBP 375 bln). Market reaction was very limited. Data next week that will draw focus includes inflation, unemployment, and retail sales.

It has been a reasonably positive week for the Japanese economic outlook. Minutes from the latest BOJ meeting showed they expect Japan to continue its moderate recovery. They say a virtuous cycle of production, income and spending is working steadily. We have seen much better than expected data on core machinery orders and a solid increase in the level of services purchased by business (known as Tertiary Industry Activity). Consumer confidence data yesterday also showed some strength beating expectations and posting the first gain in four months. It certainly seems the ultra-easy monetary policy is is having the desired effect. Next week there is a very light economic calendar so most of the focus will continue to be on the stalemate in Washington.

There have been a couple of average data points for Canada this week. Tuesdays very soft building permits release was backed up on Wednesday by a much weaker than expected trade balance. Exports did increase over the previous month, but imports increased by more, hence the widening trade deficit. On the positive side, housing starts came in better than expected, contradicting to a degree the earlier building permits data. Tonight we get the more important employment numbers and these have been somewhat volatile over the last couple of months. Next week’s highlights will be manufacturing sales and inflation data. Events in the US have the ability to dramatically affect Canada so all eyes will be on the politicians in Washington who don’t seem capable of doing their jobs.