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Economies of note - 12th July

Written by Ian Dobbs on July 12th, 2013.      0 comments

2:45pm (NZT)
Data out of Australia this week as failed to make much of an impact. Most figures have come in close to expectation and have had little influence on the economic outlook. The best result came from employment numbers that on the face of it looked promising. A rise of 10.4 thousand, against expectations of a flat result, seemed initially quite good. But looking into the detail there was actually a fall in full time work, coupled with a much bigger increase in part time employment, so that quickly tempered any real enthusiasm. Data that had the biggest impact this week came out of China. Wednesday saw the release of trade balance data that showed exports declining by a decent amount. The resulting negativity was reinforced by import data which also contracted. These are not great figures for China, and warn of a very real ‘hard landing’ ahead. The resulting AUD weakness only lasted about 10 hours though. As minutes from the US Fed meeting and a speech from Ben Bernanke saw a big bout of profit taking on USD positions as it was sold heaving across the board. Key releases next week for Australia come in the form of business confidence, and minutes from the last RBA policy meeting.

New Zealand
Data out of New Zealand has had little impact this week, with key business confidence numbers showing little change from last month. We did however get some comments from finance minister Bill English that were supportive of the currency. He was on the wires quoted as saying ‘interest rates will rise, it’s just a matter of when.’ He also said that could lead to a higher New Zealand dollar. The reaction in the currency was quick, with a material increase in buying lifting the NZD across the board. The strength was somewhat limited  however, as it was countered by some very average Chinese trade data. This saw both the NZD and AUD come under renewed pressure. Next week’s key data will be the release of inflation figures on Tuesday.

United States
It has been an interesting few days for the US with a couple of factors causing a notable turnaround in recent USD strength. Wednesday night’s release of wholesale inventories came in much weaker than expected. As a result this has seen many forecasters trimming their expectations for GDP growth this quarter. That undermined USD strength to a degree, but it was the release of the Fed meeting minutes and a speech a while later from Bernanke that really saw the USD selling pick up. It can only be fair to say there were some very mixed signals coming out of the Feds minutes. It seems a number of board members want to see an improvement in employment numbers before they start tapering, while other members see quantitative easing ending altogether this year. Ben Bernanke certainly didn’t sound like a man on the verge of tapering in a speech released on Thursday morning. He said highly accommodative monetary policy is what is needed and that the unemployment rate understates weakness in the employment market. The USD hated these comments and rapidly lost ground across the board. It’s all very surprising from a man who gave a clear signal only a couple of weeks ago that the Fed could start tapering soon. This has caused some serious volatility and we can expect more of the same in the months going forward. The market will be hanging on every word from Bernanke and anything but a very consistent tone will continue to cause wild swings in currencies and interest rates. Tonight sees the release of producer prices and consumer sentiment data, both of which have the potential to impact the currency. Next week’s highlights will be retail sales, inflation, housing data, and industrial production.

It has been a very interesting week for Europe, although one I’m guessing ECB president Draghi will be happy to see the end of. It didn’t start well with news that the IMF have downgraded growth forecasts for the region, although that’s not a huge shock. Next came Standard and Poors who announced they have downgraded Italy’s sovereign credit rating to BBB, with outlook negative. That’s two notches above junk bond status. We had one ECB official on the wires quoted as saying ‘forward guidance goes beyond 12 months.’ This was quickly contradicted by a statement from the ECB that said “there is no time horizon on forward guidance”. The most recent comments from an official overnight have said rate guidance will be assessed meeting to meeting. So that’s all very clear! I’m struggling to see how this new policy of ‘forward guidance’ is providing any real certainty to the future path of interest rates. At least in the US they tied their guidance to something more certain by saying interest rates will stay low until unemployment reaches 6.5%. It seems the ECB want the benefit of a lower rate outlook, without having to provide the certainty. And just to add another level of uncertainty, it seems the political landscape in Portugal is again far from certain. It’s no wonder we are getting articles like the one this week in the Telegraph saying the wheels are coming off the whole of southern Europe. There were however some bright spots this week, with French industrial production and inflation figures showing signs of life. There is plenty out next week to keep the market on its toes. The highlights being economic sentiment, Inflation, current account and trade balance.

United Kingdom
Like most currencies the Pound Sterling has had a choppy week, pushed around by a mix of domestic and offshore factors. Figures released on industrial and manufacturing production came in very soft and caused a notable increase in GBP selling. This was countered somewhat by a firm estimate of June quarter GDP from an economic research institute. The IMF has also upgraded its GDP outlook for the UK and Moody’s have changed the outlook for the UK banking sector to stable from negative. There is plenty out next week for the market to digest. The highlights will be data on inflation, the BOE minutes, unemployment and retail sales.

It’s been a bit of a mixed bag on the data front for Japan this week. Soft consumer confidence numbers were a surprise, however a strong reading on core machinery orders helped of offset it that impact. The IMF released global growth forecasts in which they have revised up the outlook for Japan’s growth this year. This is in response to the impact the current government and Bank of Japan (BOJ) policies are having. To that extent there was also a BOJ policy meeting this week. They made no material change and continue to say they will keep policy very accommodative. But the overall tone of the statement was somewhat upbeat. We will get the minutes from this meeting on Wednesday next week, but aside from that the economic calendar is very light.

Canada had some solid data on the housing market this week, which probably won’t impress the central bank. Building permits came in surprisingly strong with the fifth consecutive monthly gain. That’s the longest unbroken stretch in 10 years. This strong data was backed up by housing starts which also beat expectation. The central bank has been clear that the housing market is one of the risks facing the economy and these numbers won’t give them any comfort. They have however lent support to the Canadian dollar that was also helped by the IMF revising higher its growth forecasts for the economy this year. Next week sees a full economic calendar with manufacturing sales, wholesale sales, the BOC rate decision, and inflation data all set for release.