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Economies of Note - 13th May

Written by Ian Dobbs on May 13th, 2016.      0 comments

3:00pm(NZT)
Australia
The AUD has consolidated in trade against the USD this week. A lack of key data out of both Australia and the US so far has combined with a relatively quiet week in the commodities space to ensure that last week’s poor showing which saw the AUD/USD fall over 3% (open/close) wasn’t repeated. Sentiment towards the AUD continues to remain weak following the RBA move to cuts rates and lowered inflation forecasts. Expectations for further cuts in 2016 are high. Data released during the week was only second tier in nature. The week started with soft Chinese trade data which was released over the weekend (led by a 1.8% decline in exports) and ANZ Jobs Ads on Monday which declined on the month prior. Data released on Wednesday included home lending and Westpac consumer sentiment which both topped expectations, although the former weakened considerably on the month prior. Looking out to next week we expect a busier week again with the next set of Australian employment data due on Thursday.
 

New Zealand
The NZD sits largely unchanged in trade this week against the USD after rallying from lows not seen in six weeks earlier in the week. Data releases which were few this week were dominated by today’s Q1 Retail Sales release which saw both the core and headline number come in marginally under expectations. Data from earlier in the week included Electronic Card Retail Sales which exceeded the consensus and Business PMI numbers which rose from the month prior. The aforementioned data took a back seat to the RBNZ Financial Stability report which saw the NZD rally after its release after no new macro prudential housing measures were released in the report, although the central bank did indicate that further measures were in its sights. Market’s had previously sold the NZD on the back of a published interview with the Finance Minister which discussed the prospect of new measures being introduced. Perceptions are that the implementation of such measures would allow additional room for the RBNZ to cut rates to target the current low inflationary environment, an action which is currently very difficult given the hot housing market. Looking out to next week we look forward to the latest in the GDT dairy price auction series and Q1 Producer Price numbers.
 

United States
It has been a quiet week so far for the USD that has seen it eke out marginal gains over the course of the week. Data of interest included JOLTs Job Openings numbers which indicated continued strong demand for labour. The data backs up Friday’s employment numbers which pointed to a reduction of the slack in the labour market. The NFIB survey of business optimism rose from the month prior as it gained for the first time in a year. The report also included data which showed firms finding it increasingly difficult to fill positions, although the later release of Initial Jobless Claims for the week to May 7 rose by more than that expectations. Overnight comments from Fed members Mester, Rosengren and George struck similar tones after they spoke of moving US rates towards more normal levels in light of the current US economic conditions. The quiet data week is set to heat up tonight as we look forward to April Retail Sales numbers. Market players will watch for any sign of weakness, especially given the raft of poor retail earnings releases reported to Wall Street during the week.
 

United Kingdom
Trade in the GBP against the USD has been contained this week as the market awaited the key “Super Thursday” BoE event releases. The BoE rates decision saw the central keep rates on hold as expected (0.5%) and maintain its asset purchase programme at current levels in a unanimous board decision. The BoE Inflation report contained a 2016 cut in the bank’s GDP forecast (by 0.2% to 2.0%) and inflation forecasts that were left largely unchanged. The bank issued a stark warning over the potential costs of a UK exit from the EU as Governor Carney warned over the limited ability that the central bank would have to respond if Britain chose to exit the EU given the current low level of rate settings. The bank would also face a tough choice over whether to cut rates to bolster growth or raise them to curb surging inflation (noting the imported cost pressures from a lower GBP should an exit occur). Data of interest released during the week included Halifax house prices, which showed a moderation in the rate of annualized price growth and weak March trade data, that was a little better than expectations. The Industrial and Manufacturing Production numbers released on Tuesday both failed to meet expectations and confirm a UK economy which is operating under increased uncertainty ahead of the vote on EU membership in June. Look to the US data calendar tonight for direction ahead of next week’s UK data schedule- which includes the latest inflation, employment and producer price data numbers amongst others.
 

Europe
Trade in the EUR against the USD has remained relatively subdued during the course of this week. Any volatility that has been seen has occurred in the latter half of the week and came on the back of a generalised easing in the USD overall. Data releases have included stronger than expected German Factory order numbers and a better than expected German Trade Balance for March. Weakness was noted in the latest German Industrial Production numbers and raises concern over the momentum of the economic upswing in Europe’s largest economy which accounts for 27.8% of the combined EU GDP. Weakness was also noted in the French manufacturing production numbers which declined 0.9% m/m. The weakness was broad based across Europe’ second largest economy (which accounts for 20.7% of EU GDP). Understandably the later release of the EU Industrial Production numbers mirrored the earlier weak German and French numbers. Inflation and GDP data will dominate today’s EU focus, although expect the US data to dictate sentiment overall.
 

Japan
The JPY has remained on the back foot in trade against the USD this week. The data schedule has again been quiet out of Japan this week. Dominating the event schedule was the release of the BOJ March monetary policy minutes which showed divisions in opinion over the trajectory for interest rate settings. Numbers released included Average cash earning which easily beat expectations. Preliminary Leading Index data for March beat expectations, whilst current account data for the same month caused little fuss after it matched the consensus. Verbal comments from Japanese officials have continued this week over the ability to intervene (to prevent the JPY rising further), although so far the market views this prospect as remote given the current trading levels. Look for a busier data week next week in Japan. Releases due during the week include amongst others Industrial Production on Monday and preliminary GDP data on Tuesday.
 

Canada
The CAD has reversed its early week declines seen against the USD during trade this week. Lows below 1.3000 were seen prior to the reversal which saw the CAD gain close to 2% at one point. The rise was once again largely predicated on the price of oil which saw the price of WTI crude reach fresh 2016 highs on Thursday. The latest rally came amidst reports from the International Energy Agency (IEA) which said world output had reduced to growth of 50k barrels per day (bpd) on an annual basis last month from 3.5 million bpd in April 2015. The IEA also revised its numbers for Q1 2016 global demand growth higher on the back of strong gains from India, China and Russia. Data releases from Canada this week have been sparse. Housing Starts numbers for April met the consensus expectation while the latest New Housing Price index which lifted 0.2% m/m in March matched the month prior. Expect a busier week next week however especially later in the week when the latest Canadian inflation and retail sales data is released.
 
 

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