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Economies of Note - 13th March

Written by i on March 13th, 2015.      0 comments

We have seen some mixed data from Australia this week, but overall it hasn’t impacted the expectation for another interest rate cut in the coming months. Business confidence fell from three to zero, which is its lowest reading since mid-2013. This result only served to reinforce the outlook for another rate cut. The Reserve Bank of Australia’s (RBA) assistant Governor Kent spoke on Wednesday and he said monetary policy will continue to support the economy. He added there is little to suggest economic growth will increase in the near term and the Australian dollar remains high given the state of the economy. He also believes unemployment will rise for a little longer and peak a little higher than previously expected. Employment data was released yesterday and the gain of 15.6k jobs was just slightly above expectations. The unemployment rate actually dropped a touch to 6.3% from 6.4% previously and this lent a small amount of support to the Australian dollar. Next week is looking a little quiet data wise. New vehicle sales, the RBA minutes, and the leading index are the only releases of note.

New Zealand
The New Zealand dollar saw some volatility around the release of news that threats have been made to contaminate infant formula with 1080 pesticide. The impact was short lived and unless export orders are dramatically reduced as a result there will be no longer term impact for the currency. The main focus this week was on the Reserve Bank of New Zealand’s (RBNZ) Monetary Policy Statement released yesterday morning. The bank remains very neutral and their central projection is consistent with a period of stability in the official cash rate. They have revised down inflation forecasts for 2015 which now see the CPI at just 0.4% from 1.5% prior. They believe inflation is likely to fall to zero in the March quarter, before gradually returning to 2 percent over the medium term. Although the RBNZ continue to describe the level of the NZD as unjustifiably high, this was universally expected and during question time Governor Wheeler actually suggested they are much happier with the current level of the NZDUSD. With the currency trading at the time close to recent lows against the USD, and nothing in the statement to really encourage further selling, the New Zealand dollar reacted positively and gained a full cent against it’s US counterpart. Next week we have another Fonterra dairy auction along with current account and GDP data to digest.

United States
It hasn’t been a good week data wise for the US, with some concerning sales numbers posted. It started with wholesale inventories data which suggested there may have been some end of year/new year inventory building as inventories were up 0.3% vs 0.0% expected. The sales component of the report raised some eyebrows though as it showed wholesale sales were down 3.1% vs -0.3% expected. These concerns were rammed home last night after the key retail sales report also missed expectation and printed negative for the third month in a row. Retail sales were -0.6% vs +0.3% expected. The core reading wasn’t much better. Poor weather likely played a part, but it seems there is more going on than just that. What is happening to the money consumers are saving at the petrol pump? Because at this stage it doesn’t look like it’s getting recycled back in the economy as you would have expected. Consumer spending accounts for two-thirds of US economic activity, and these poor readings will impact growth figures for the first quarter. The question now is, will they cause the Fed to delay hiking rates? There is now a real divergence between employment data, which continues to improve, and sales data which look decidedly average. On the back of this week’s data that has only raised questions about the health of the economy, the USD has suffered a sharp turnaround. We get to hear the Fed’s take on the current situation next week with the FOMC statement set for early Thursday morning. Other releases to watch out for next week include industrial production, building permits and the Philly Fed manufacturing index.

United Kingdom
Manufacturing and industrial production numbers both missed expectations this week coming in on the soft side. The results weren’t bad enough to raise any concerns about the growth outlook, with the NIESR estimating GDP for the three month’s ending February will be around 0.6%. Bank of England (BOE) Governor Carney spoke on Tuesday night and he said although inflation is likely to fall to around zero in the coming months, the central bank would be “extremely foolish” if they took the “unnecessary” step of pumping more stimulus into the economy to fight it. The BOE’s McCafferty reinforced this view when he said the central bank should look through the effect of oil price declines, even if they were prolonged. Governor Carney was on the wires again last night, and this time his comments seemed a lot more ‘dovish’. He made a number of references to the negative impact of a strong Pound, and also said it may be appropriate to take into account persistent external deflationary forces, almost contradicting what he said earlier in the week. These latest comments weighed on the UK Pound somewhat. Next week we get average cash earnings data, claimant count change, the Bank of England minutes, and the annual budget release.

The souring of relations between Greece and the EU reached comical levels this week, although the longer term impact of a failure to work together would be anything but funny. Greece said Germany has a moral obligation to make amends for years of Nazi occupation. They then added if war reparations were not paid they would look at seizing German assets within the country. One can only imagine how that went down in Berlin. The EU’s Dijsselbloem this week said markets will lose confidence in Greece if they don’t reform. He added Greece won’t receive any more money unless it makes and effort. It’s getting harder and harder to see how the two sides will be able to move forward and work together, which is something they desperately need to do if Greece is to avoid default and stay within the Euro. The recent improvement in economic data has ECB President Draghi feeling better about the outlook. He said this week the slowdown in growth has been reversed and the recovery should gradually broaden. The IMF’s Lagarde also weighed in saying the Euro area has turned the corner and that growth may be better than expected. She added the weaker Euro is having an effect on exports. The Euro has certainly been weak, and remains so. With rock bottom interest rates, and the advent of QE, it is becoming the funding currency of choice and this will keep it under pressure over the medium/long term. Next week’s highlights include inflation, the ZEW economic sentiment index, and the ECB’s economic bulletin.

The week started off with some disappointing GDP data from Japan, but since then things have looking a little better. Japan’s rebound from recession late last year was not as strong as first though with annualised GDP for the fourth quarter coming in below expectation at 1.5%. Some forward looking indicators are a little more encouraging. The economy watches sentiment index improved to 50.1 from 45.6 previously. Core machinery orders came in at -1.7%, which was better than the -3.9% expected. The tertiary industry activity increased by 1.4% versus expectation of just 0.6%. Consumer confidence also improved to 40.7 from 39.5 previously. The Japanese press are reporting that some positive wage agreements are in the pipeline for Nissan, Fuji, and Toyota. Significant wage gains will play a very important part in helping to boost inflation toward the 2% target. Next week have the BOJ monetary policy statement and press conference, trade balance data, and the BOJ’s monthly report.

There has been little in the way of significant data released from Canada so far this week. Last night we did get the new house price index which came in at -.1% for the month. The market impact was negligible though. Tonight could be a different story with key employment data set for release. The market is expecting employment change to come in at -3.5k and the unemployment rate to tick up to 6.7%. Next week we have manufacturing sales, wholesale sale, inflation, and retails sales data to digest.