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Economies of Note - 12th August

Written by Ian Dobbs on August 12th, 2016.      0 comments

A weaker greenback has helped the AUD push higher in trade this week. Local data of interest included ANZ job ads which fell from a month earlier. The NAB business survey showed conditions declining in July from the month prior, although remaining well above the long term average. Business confidence also eased as weakness emerged in the recent key supporting components of profitability and trading conditions. Consumer confidence was seen lifting modestly in August according to the Westpac-MI consumer sentiment survey released on Wednesday as optimists marginally outweighed pessimists. MI inflation expectations data which showed an easing in July from a month earlier reflect a trend that has been evident for most of the year. RBA Governor Stevens’ final speech noted the difficulties which central banks face as they attempt to boost growth in an environment where many non-government balance sheets lack the ability to take on more debt, even despite the low rates on offer. Expect a quiet finish to the week with the later US data setting the tone. Items of interest next week start with the recent RBA meeting minutes on Tuesday.

New Zealand
Frustration with the strength of the NZD and the reaction of the currency markets will be high at the RBNZ after they cut interest rates to 2.0% and indicated the need for further policy easing (based on current projections) in order to ensure inflation returns to near the middle of their targeted range. The reaction of the currency markets was similar to that seen recently across the Tasman when the RBA cut rates, namely a sharp rally in the local currency, this time to highs against the greenback not seen since May last year. The move highlights the difficult job that the RBNZ has in the current environment as central banks and negative interest rates which dominate come at a time where the NZ economy remains in sound shape and relative local yields continue to have appeal.  Other data released this week include this morning’s retail sales numbers which rose by more than twice that expected in the latest quarter. Attention for now will turn to Chinese data this afternoon and the later US retail sales release tonight.

United States
This week has been a relatively quiet one in the US so far. Key data started with numbers on US productivity that added to the worrying trend of declining productivity. The second quarter’s 0.5% annualised fall followed the weak -0.6% reading in Q1 and the even worse 2.4% fall from Q4 2015. Analysis of longer term data reveals a pattern of a declining trend which has been reversed only temporarily by bouts of unsustainable borrowing/asset bubbles, and points to a lack of value-add in recent US job creation. Adding to the picture were numbers on unit labour costs which also rose by more than expectations. Other data of interest included a larger than expected rise in JOLTs job openings and rising import prices which came despite a stronger USD over the month. Initial jobless claims ticked lower from the week prior and remain near four decade lows. Focus to round out the week will be on today’s retail sales, Michigan consumer sentiment, and producer price indicators.
United Kingdom
The pound sterling remains under pressure in trade against the greenback this week. Comments from BoE policymaker Ian McCafferty who wrote in the Times that more quantitative easing was likely to be required dented sentiment earlier in the week. The remarks accompanied data that showed the UK economy shrinking by 0.2% in July according to the NIESR. UK trade data for June was very weak and came as imports hit record highs. Data from the manufacturing sector was weaker than expected as production declined by more than expected in June. Industrial production for the same month registered a minor expansion, although the three monthly industrial output which rose 2.1% was the largest gain in a calendar quarter since Q3 1999. Other numbers included the BRC retail sales monitor which rose 1.1% against expectations of a 0.7% fall and the RICS house price indicator which fell to its lowest level since April 2013. House price declines were the most severe in London. Look for today’s US numbers to set the tone of trade into the week’s end whilst next week’s key data will start with earnings and inflation numbers on Tuesday.

This week has been very quiet for incoming data out of Europe so far. German trade numbers released on Tuesday failed to match the surplus expected. This came on the back of both a larger than expected rise in imports and smaller than expected gain in exports. French industrial production for June was disappointing, the 1.3% y/y decline was also much worse than the 0.4% contraction expected. The French and Italian regional inflation reads largely met expectations, although the latter was worse than expected after the harmonised index showed prices falling 1.9% m/m and 0.2% y/y. The French numbers which also fell for the month highlight the extent of the current weak inflationary environment in Europe. Look for the German and Spanish numbers to come later today. Other data of interest includes GDP reads from Germany, Italy and the euro area. Euro area industrial production is also due, although look for attention to quickly revert to the US data once again.

This week has been a quiet one in Japan that saw the release of only a few minor indicators of interest. The week started with data on bank lending and the June current account. The former edged higher whilst the current account printed lower than expectations after it registered its smallest trade surplus since January. Core machinery orders, a leading indicator of capital expenditure, rose by more than expected in June on Wednesday. The data came as a relief after last month’s contraction which was the largest in eighteen months. The Tertiary industry activity index measure of services purchased by businesses rose by more than expectations, although also failed to garner any market reaction. The BOJ September policy assessment outlined factors such as the oil price fall and the sales tax hike as hampering the achievement of the inflation goal and point to little likelihood of any tapering in the current quantitative and qualitative easing (QQE) programme. Look for a quiet finish to the week which sees the focus round out on today’s later US numbers. Next week starts with key GDP and industrial production numbers on Monday.

Crude oil prices, which jumped by as much as 5% in one of the biggest daily moves in three months, has helped push the Canadian dollar sharply higher against the greenback in trade overnight. The move higher in oil comes after the International Energy Agency (IEA) indicated that global energy markets could be close to rebalancing in the coming months. A push higher was also seen earlier in the week after the OPEC president hinted that a group of major producers could look at discussing a price stabilization plan when they meet at an energy conference in Algeria next month. Local news leads have been sparse this week. Building permits which fell 5.5% m/m from the month earlier failed cause a stir. Housing starts, which marginally beat expectations, met the same fate. Whilst seen dipping from the month prior the trend continues to be a positive one as demand for lower-priced homes and a lack of housing inventory supports the momentum. New house prices which rose slightly in June failed to meet expectations, although the data again failed to impact. Look for oil and today’s US data to set the tone of trade into the week’s end.