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Economies of Note - 12th September

Written by Ian Dobbs on September 12th, 2014.      0 comments

The past week has seen a mixed bag of data from Australia which has failed to support the currency to any large degree. Business confidence and consumer sentiment both declined from the previous readings, while home loans data rose less than expected printing at +0.3%. But the real talking point on the week has been yesterday’s employment change number. The market was expecting a result around +15k so when the actual number printed at +121k there were quite few raised eyebrows. That is the biggest ever increase in the series. The unemployment rate fell from 6.4% to 6.1% largely reversing last month’s jump. Something just doesn’t seem right with the data and as such its impact has been lessened. We may have seen the biggest ever increase on record, but total hours worked were flat? The Australian Bureau of Statistic have looked into the data and believe it is correct. They did however, make changes to the labour force survey methodology back in July and it seems clear this has impacted the last couple of readings. The only sensible thing to do is take this data in context of the previous result and the next couple of readings. There is a clear improving trend, but until we get more data points under the new methodology we have to be very cautious about reading too much into one or two numbers. The RBA minutes next week provide the main highlight in an otherwise light economic calendar.

New Zealand
This week was all about the Reserve Bank of New Zealand’s (RBNZ) monetary policy statement released yesterday. The market was keen to see to what degree declining dairy prices and a cooling housing market had impacted the bank's forecasts. Over recent weeks the market has also scaled back the expected peak of this tightening cycle and they needed to get confirmation from the central bank that this was in line with their thinking. That certainly seems to be the case with the RBNZ suggesting that inflationary pressure is less than they had anticipated. The RBNZ also signalled that the pause in the tightening cycle would be longer than originally anticipated and this has seen forecasters suggesting the next hike could come anywhere between March to June next year. Of particular note in statement was the strong wording in regard to the value of the New Zealand dollar. They said the exchange rate has yet to adjust materially to the lower commodity prices, its current level remains unjustified and unsustainable, and that they expect further significant depreciation. These comments kept up the pressure on the NZD which traded to recent lows against the USD. It seems likely that after this prolonged pause we will get a much more gradual increase in the cash rate with the peak being somewhat closer to 4%, than 4.5%. The focus now turns to next week’s current account and GDP data.

United States
The United States dollar has continued its broad recovery this week with the largely second tier data so far supporting the positive economic outlook. Encouraging results from consumer credit, wholesale inventories, and the Federal Budget Balance have all helped to reinforce positive sentiment toward the USD that looks on track to perform strongly into the end of the year. Perhaps the most important data of the week is still to come with tonight’s release of retail sales and consumer sentiment. Both releases are expected to show improvement, with retail sales expected at +0.3% and consumer sentiment at 83.5. Next week the focus turns to producer prices, inflation, building permits and the FOMC statement. The market will be keen to get a feeling from the Fed as to just how long they are likely to wait to hike rates after they wind up QE next month.   

United Kingdom
The past week has seen a wild ride for the GBP with conflicting poll results causing large swings in the value of the currency. The UK Pound started the week dramatically lower after a poll last weekend showed a small margin in favour of Scottish independence. But subsequent polls have pointed to a swing bank in favour of the status quo and this has helped the GBP recover a large amount of the lost ground. We can expect further volatility between now and the actually referendum on September 18th as economic data takes a back seat to this one-off ‘risk event’. We did hear from some Monetary Policy Committee (MPC) members during the inflation report hearings this week. They only served to show the range of view within the committee at the moment which we already knew after a couple of members voted for rate hikes at the last meeting. Next week will be a big one with inflation, employment and retail sales data, the Bank of England (BOE) rate meeting, and Friday’s all important Scottish independence vote.

Data from Europe this week has failed to materially impact the current outlook. Better than expected readings from German trade balance and French industrial production have been offset by falling investor confidence and a weak French trade balance result. The ECB’s Praet was on the wires reinforcing Draghi’s view that fixing bank lending needs both supply and demand side action. The ECB’s monthly report highlighted the issues with Russia as impacting on growth. The central bank said they are monitoring inflation closely and they believe the recent measures taken will help inflation move gradually back up towards 2%. The ECB’s number two Vitor Constancio said the central bank discussed “sovereign QE” (the purchase of government bonds instead of asset backed securities) at the last meeting, but it was not on the table as such. He did say it was “certainly a possibility” in the future. We get Eurozone industrial production data tonight and next week the focus turns to economic sentiment, inflation and current account numbers.

Data from Japan this week has again been mostly disappointing. Weaker than expected results for the current account, GDP, tertiary industry activity and core machinery orders have all helped to raise concerns about the economies bounce back from April's sales tax increase. The Bank of Japan (BOJ) released the minutes from their last meeting which suggest they continue to see the economy recovering moderately. They will however, continue to check risks and make adjustments as necessary. They believe their current policy is having the desired effects and they will continue the ultra-easy stance until the 2% inflation target is reached. Governor Kuroda was quoted as saying he expects a bounce back to positive GDP in the third quarter. He also believes the employment and income situation is improving, and there is therefore no need to change monetary policy at the moment. We will hear from Kuroda again next week with two speeches scheduled in what is otherwise a quiet week data wise.

It has been a quiet week for Canadian data with the housing market taking the main focus. We have seen another strong reading from building permits that came in up 11.8%. This is on the back of the two previous months that were both solid readings as well. Housing starts data fell a touch from 200k to 192k while the new house price index came in unchanged versus expectations for +0.2%. That is the weakest reading since December 2013, but it’s certainly not enough to raise any real concerns about the housing market at this stage. Next week should prove more interesting with manufacturing sales, inflation, wholesale sales and a speech from Governor Poloz all set for release.