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Economies of Note - 13 February

Written by Ian Dobbs on February 13th, 2015.      0 comments

A small improvement in business confidence, and a much bigger jump in consumer sentiment, did little to help the Australian dollar this week. The AUD was under pressure for much of the week and then saw sharp losses in the wake of yesterday employment data. There were no positives to take away from the release with employment falling by more than forecast at -12.2k. The unemployment rate jumped from 6.1% to 6.4%, and there was a sizable swing away from full-time work toward part-time employment. Things don’t look so bad if you average out the employment figures for the past four months, and that’s probably the best way to view the data. Even the Australian Bureau of Statistics (ABS) said that statistical volatility may have contributed to the unemployment number. The ABS had a nightmare late last year with seasonal adjustment factors and they produced some very dubious figures. It would be wise to keep that in mind when analysing this recent report. Next week to draw focus we have minutes from the latest RBA meeting set for release on Tuesday.

New Zealand
It has been a quiet week from economic data from New Zealand. We did get the latest reading from the Business NZ manufacturing index and it showed a sizable decline. The index came in at 50.9 which is a big fall from the previous reading of 57.1. Although this was the lowest reading in three years, it was likely influenced by holidays over the January period and we could easily see a recovery next month. The market impact was therefore limited. What won’t be so limited however, is the economic impact of the drought that was officially announced yesterday. All of Canterbury, Central and North Otago, and Marlborough have been declared drought areas and the impact of this could be to the tune of -0.5% for GDP in 2015. The only silver lining is that falling production should help to underwrite the recent recovery in dairy prices. We have another dairy auction from Fonterra next week to digest along with the latest retail sales data.

United States
The USD has failed to kick on with broad based gains this week. Some soft data readings have certainly been part of the reason with last night retail sales figures particularly disappointing. Retail sales for January were down 0.8% versus expectations of -0.4%. If it was just a weak January number alone you could write it off as a ‘hangover’ from the Christmas spending period. But this result comes on top of the December reading that was also soft at -0.9%. The money consumers are saving at the gas pump is not getting recycled back into the economy at this stage. It could be getting used to pay down debt, which is a positive, but overall these numbers are a concern. So much so in fact that some forecasters are now starting to shave their GDP estimates for the first quarter. Last night we also saw weekly jobless claims jump back above 300k. As this can be a volatile number, the four week moving average is a better guide to the state of the employment market and it remains in healthy territory. Tonight we get a key reading on consumer sentiment, and next week we have building permits, producer prices, and the FOMC monetary policy meeting minutes to draw focus.

United Kingdom
Earlier this week from the United kingdom we saw both manufacturing and industrial production figures print on the soft side. The market impact was limited however, as it appears they were influenced by lower oil and gas output in from the North Sea fields due to maintenance work. The main focus this week was on last night’s Bank of England inflation report. Some of the initial headlines looked very ‘dovish’ with talk of potential rate cuts, but once the market took time to digest the full report it was a very balanced affair. BOE Governor Carney also stated later the press conference that the most likely next move in rates is higher. Although inflation is set to be close to zero for most of 2015, Governor Carney said the bank will look through this one-time adjustment which is actually good news for British households. Inflation is expected back at 2% in two years. Overall the statement is consistent with market expectations for a very gradual lift off in interest rates sometime in the first half of 2016. Next week we get the latest inflation reading along with employment data, the Bank of England monetary policy meeting minutes, and retail sales.

European data this week has taken a back seat to negotiations between Greece and its creditors. There were many conflicting headlines coming out of the Eurogroup meetings on Wednesday evening and they ended with little in the way of agreement or compromise. The Greek finance minister said that “dialogue was the main achievement” and that he hopes for an ‘optimal’ conclusion at the second round of talks on Monday. However, in the past few hours there are reports that negotiations between Greece and Germany are seeing some compromise on both sides, with ‘unnamed’ German and Greek officials saying they have found some common ground on the aid deal. We will have to wait and see if this is indeed the case but caution is warranted as this is far from an official statement. Monday’s Eurogroup meetings are now obviously a major focus, and should the Eurozone not start to crumble after that attention will then turn to German ZEW economic sentiment data, the ECB minutes, along with service and manufacturing PMI’s.

We have seen a mixed bag of data from Japan this week. The current account showed another healthy surplus driven by income from overseas investments and a narrowing trade gap thanks to lower oil prices and a weak Yen. The Tertiary Industry Activity index disappointed, printing at -0.3% versus expectations of 0.0%, but core machinery orders were much stronger than forecast coming in at +8.3%. An article out on Bloomberg last night may have helped the Yen gain some ground. It said Bank of Japan (BOJ) officials view further monetary easing at this point as counter-productive as it could trigger a decline in the Yen that would hurt confidence. Next week we have GDP data, the Bank of Japan Monetary Policy Statement, and the trade balance to digest.

A couple of minor data releases from Canada this week haven’t had much market impact. Housing starts were better than forecast at +187k, while the new house price index was a touch weaker than expected at +0.1%. Bank of Canada Governor Poloz said on Monday that the fall in oil prices might shave a third of a percentage point from GDP in 2015. Senior Council Member Wilkins also spoke this week and she said that the economy has room to grow, that monetary policy will need to support the adjustments in the economy, and that the oil price drop is a setback. The market is pricing in around a 50% chance of another cut from the central bank at its March 4th meeting. Tonight we get manufacturing sales data, then next week we have wholesale sales, and retail sales figures to digest.