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Economies of Note - 16th December

Written by Ian Dobbs on December 16th, 2016.      0 comments

November employment data was the highlight of the calendar in Australia this week. Total employment and full-time employment rose 39k during the month and was stronger than the 20k gain expected. The rise in participation saw the unemployment rate tick up to 5.7%. Full-time hours worked, which are shrinking, point to little pressure on wages inflation- although lower underemployment suggests that the excess labour supply is declining. Westpac Consumer confidence numbers were weak and fell 3.9% in December. NAB business confidence levels fell to 19 month lows. House prices which grew 1.5% q/q were under consensus and the index declined to its lowest level since Q1. The final full week of the year next week is very quiet (RBA minutes on Tuesday) so look to US dollar sentiment for direction. Sentiment towards the greenback is very strong in trade at present after yesterday’s US FOMC projections which are picking three hikes in 2017.

New Zealand
Rescheduling of the key local economic releases for this week till next week has ensured a quiet week for local directives. Steady gains against the greenback evaporated in trade yesterday after the US FOMC meeting which saw the NZD lose over two cents from its overnight highs. The move came after the US dollar rallied on the back of the FOMC dot plot for rates in 2017 which saw Fed participants move to expecting 3 rate hikes stead of two. Local data included REINZ house prices which rose 14.9% year-on-year and third quarter manufacturing that rose 2.1%, which was only marginally lower than the previous quarter’s revised 2.2% growth. Terms of trade data for the same period showed a further easing as export prices deteriorated 2.8% in the quarter. NZ business PMI data eased in November, although building work completed continued to post strong growth in Q3 (+22%). Local focus next week will concentrate on Thursday as we receive the delayed GDP and Balance of Payment numbers. Dairy price data will feature overnight Tuesday.

United States
Yesterday’s FOMC meeting provided the catalyst for yet another leg higher in the greenback which powered higher after the Fed raised its projections for Fed rate hikes in 2017. The dot plot for rates revealed participants expecting three (0.25%) hikes in 2017 instead of two. Three further hikes are still expected for both of 2018 and 2019. The board reached a unanimous decision to lift the fed funds rate by 25 bps to 0.50-0.75%. Chair Janet Yellen downplayed the size of the dot plot shift and called it “very tiny”. Yellen admitted that fiscal policy was a factor in the revisions, although maintained it was too early to assess the impact of fiscal policy. Key data this week included retail sales which rose by less than expected in November. Industrial production declined by more than expected in the same month, although was weighed on by reduced utility output as warm weather reduced energy demand. November inflation numbers conformed to expectations and the Philly Fed manufacturing survey easily surpassed expectations. Next week starts quietly (just the services PMI on Monday) and begins with existing home sales data on Wednesday. Durable goods orders/Q3 GDP feature on Thursday.

United Kingdom
It was a busy week for the sterling this week which culminated with key events yesterday. These included central bank meetings from both the US Fed and Bank of England (BoE). The former lifted rates and projected a further three hikes in 2017 which saw the market lift the greenback against its key trading pairs (including the GBP). The BoE left rates on hold at 0.25%, all members voted for the ‘hold’ decision. Activity was seen growing at a moderate pace and inflation was seen rising to 2% in the next six months. Numbers on inflation earlier in the week rose 1.2% year-on-year (y/y). Both the headline and core reads were above expectations as import prices lifted 15% y/y. Employment data was close enough to expectations to cause little fuss although the rise in average earnings was a positive. Retail sales were 5.9% higher in November from a year earlier. The level was down from October’s 7.2% rise (which was the strongest since 2002) and was in line with economist’s forecasts. GDP and business investment data on Thursday will be the highlight next week.

Recent strong sentiment for the US dollar continued in trade this week. This saw the Euro plumb lows not seen since the start of 2003. Yesterday’s FOMC projection of three rate hikes in 2017 (versus two prior) was the catalyst for the latest US dollar boost. The week has been relatively quiet for fresh economic leads in Europe. The December German ZEW (current situation) lifted beyond expectations to the highest level since September last year. Expectations for the next six months remained stable, although the euro wide reading registered a solid gain. Industrial production in the euro area eased against expectations of a small rise in October. Markit manufacturing PMI data beat expectations across the euro-zone and in key countries France and Germany, although the services PMIs underwhelmed outside of France. Focus to conclude the week will be on inflation and trade numbers for the euro area. Next week will begin with the German business IFO on Monday.

Trade in the Yen continues to be driven by the exceptionally strong US dollar sentiment this week. The latest gains in the greenback came after yesterday’s increased projections from the Fed for US rate hikes in 2017. Local news was dominated by the release of Wednesday’s Tankan business survey. The survey showed some improvements in the sentiment of manufacturers whilst non-manufacturing held flat in Q4. The weaker yen was a key driver of the rise in sentiment amongst large manufacturers, although small businesses which rely on soft domestic demand remain less optimistic. Core machinery orders rose by more than expected in October and the Nikkei Manufacturing PMI saw the greatest improvement in manufacturing conditions since January. In focus next week is the BoJ monetary policy meeting scheduled for the 19th and 20th.

Yesterday’s US Fed projections of higher than expected US interest rates for 2017 saw the Canadian dollar come under pressure in trade throughout day as investors disseminated the prospect of widening interest rate differentials between the key trading partners. Oil prices relinquished all of their weekly gains as the week progressed, partially on the prospect of higher US rates but also as numbers revealed OPEC pumping at higher than expected levels in November (150k bpd more than October). The fall in oil prices had little impact on the earlier CAD strength seen against the greenback however. The only local data was manufacturing sales which eased against expectations of a moderate gain, the release had no impact on trade. Inflation and retail data on Thursday next week will be followed by October GDP on Friday.