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Economies of note - 13th September

Written by Ian Dobbs on September 13th, 2013.      0 comments

2:00pm (NZT)
Data out of Australia in the early part of this week was supportive of the currency and helped with the correction higher in the Australian dollar. Home loan data beat expectation while business confidence and consumer sentiment both showed improvement. We also continued to see better Chinese data which has caused a number of forecasters to revise up their predictions for growth in China this year. But the good news stopped on Thursday with the release of employment figures. The market was looking for a gain of around 10k and there was talk it could actually be stronger. So when the a data was released and we saw the real number of -10.8k, the reaction was swift. The AUD dropped 80 points within minutes. There were no bright spots in the report. Both full and part time work decreased, and while the unemployment rate came in as expected at 5.8%, the participation rate decreased to its lowest level since 2007. Although these were very poor numbers, this is only one data point and it can be very volatile. It also runs against the recent trend of somewhat better data. It will no doubt weigh on sentiment heading into next week which has a light economic calendar. The key release will be minutes from the previous RBA meeting.

New Zealand
The main focus for this week was the Reserve Bank’s (RBNZ) monetary policy statement. As expected the RBNZ left the cash rate unchanged and they now expect to hike rates in the second quarter of next year. This is slightly earlier than their previous predictions but well within market expectations. However, the RBNZ does expect to hike 200 points over 10 quarters once they start to raise the cash rate from its emergency low at 2.50%. Governor Wheeler said they might have to rethink things if the loan-to-value limits (LVR’s) are not effective, and he still sees the NZD as overvalued. The currency seemed to like most of what he said and rallied across the board in the aftermath of the statement. It certainly seems New Zealand will be the first western country to hike rates and that outlook will underpin the currency on many crosses. Next week along with the current account and consumer sentiment, we also get GDP figures which will be closely watched.

United States
This week has been a much quieter one on the data front for the US. What has been released has come in on the soft side and for much of the week the USD has been under pressure across the board.  Also of note has been the Russian led diffusion of Syrian situation, which has also eased the way lower for the US dollar. The most important data of the week gets released tonight in the form of retail sales and consumer sentiment. Then next week we have a full economic calendar with the highlight being the Fed policy meeting and potential tapering announcement. Ahead of that we get figures on industrial production, inflation, and building permits. Then later in the week existing home sale and manufacturing index hit the wires. Over the coming weeks we can expect to hear a lot more about the debate around raising the debt ceiling, which will be hit in mid-October some time.

It has been a light week for economic data out of Europe with mostly second tier releases scheduled. That been said, there has been some talking points. The most notable of which is the continued weakness in French data. Industrial production for France released on Tuesday was very disappointing printing at -0.6% against expectations of a 0.7% gain. Then we head from the French finance minister who confirmed a downgrade of GDP forecasts for the country and an increase in the deficit. France faces some big economic hurdles and they are only getting bigger at this point. We also heard from an ECB official who stated that the central bank would consider offering more long term loans to banks as a tool to help bring down interest rates and help boost the euro-zone recovery. Next week's calendar offers a little more to focus on with inflation, German economic sentiment, trade balance, and consumer confidence all set for release.

United Kingdom
After last week’s trade balance data raised a few concerns for the UK recovery, the market was keen to see if data this week would confirm a strengthening economy. Things started off well on Tuesday with RICS house price balance. This is an index of surveyors reporting price increases or decreases. The outcome of 40% was the strongest reading since 2006. Last night BOE Governor Carney told a parliamentary select committee that the BOE remains vigilant over a house price bubble, and that it could recommend setting limits over how much households can borrow. On Wednesday evening we got the employment data. This had been a bright spot throughout the entire recession with unemployment heading nowhere near as high as during previous recessions or most predictions. Once again it beat expectations with unemployment claims dropping substantially and the unemployment rate reducing to 7.7% from 7.8%. These were very good figures and raises the question of whether the unemployment rate will reach the 7% mark a lot quicker than the Bank of England thinks. Bearing in mind that Governor Carney has tied his ‘forward guidance’ to that level of unemployment, this could have big implications for the monetary policy outlook. During his testimony last night Carney also stated that the first step in an exit strategy for the bank would be raising interest rates. Next week we get inflation data, the BOE minutes, and retail sales.

Japan scored a big win securing the Olympics for 2020, and the celebrations continued as the final reading of second quarter GDP was revised up from 0.6% to 0.9%. The upward revision is a big vindication of the stimulatory policies put in place by the government and Bank of Japan (BOJ). The stock market also loved the data jumping 2.5% on the news. It wasn’t all plain sailing this week however, with consumer confidence and core machinery orders both coming in below expectation. The BOJ also released the minutes from the last meeting which held few surprises. There has been plenty of talk about the need to push ahead with the proposed sales tax increases as the government needs the revenue. However they are considering a grant to low income earners if it goes ahead. The reduction in global risk aversion as the Syrian situation defused tempered demand for the safe haven YEN. Next week’s economic calendar is very light with only trade balance data and a couple of speeches from Governor Kuroda towards the end of the week.

It has been a very quiet week for Canadian economic data. The only releases of note have been building approvals that made a strong showing reversing previous weakness, and housing starts which missed expectation. We do get capacity utilisation tonight which will draw some focus, however we really need to wait for the second half of next week when we get manufacturing sales, wholesale sales, and inflation data. Bank of Canada Governor Poloz is also set to speak on Thursday. The US dollar pressure has weighed a little on demand for the closely aligned neighbouring currency in the CAD.