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Economies of note - 16th October

Written by Sam Coxhead on October 16th, 2015.      0 comments

Since last week’s RBA decision to leave rates on hold at 2.0% we have seen a raft of data, including yesterday’s Australian September employment release. This saw the loss of 5.1k jobs against expectations of a 5k gain. The  full-time employment number fell 13.9k, although the unemployment rate remained at 6.2%, against the 6.3% expectations. Annual employment growth remains a reasonable 2% y/y. Earlier in the week we saw the release of key Chinese data. Imports in September fell more than 20% registering their 11th straight month of declines. Exports fell less than expected at 3.7% from the same period last year. Chinese consumer prices rose 1.6% in September from a year earlier, less than the 1.8% expectation and down from August’s 2.0% rise. Producer prices fell for the 43th straight month, falling 5.9% from a year ago in line with expectations and unchanged from August, which registered the 2nd biggest drop since the height of the GFC in 2009. The weak data underlines concerns for the weakening demand and growing deflationary pressures from the world’s second largest economy, and Australia’s largest export partner. Comments from the RBA deputy Governor Lowe during the week welcomed the weaker Aussie, which is helping the economy rebalance away from mining investment. The RBA will also be closely watching to see whether other banks follow Westpac’s lead after it hiked its variable mortgage rate by 0.2% citing increased regulatory capital costs, noting potential implications on policy settings. Data of note next week includes China GDP data and the RBA minutes.

New Zealand
The speech by the RBNZ Governor Wheeler set the market tone earlier in the week sending the kiwi lower as the market initially reacted to comments that “further rate cuts are possible” even though recent economic data had been more encouraging. Last week’s solid dairy auction which saw the GDT price rise 9.9% had helped send the kiwi almost 3 cents higher on the week. Further comments from Wheeler reduced expectations of any further cuts however, as he alluded to the need to have sufficient capacity to cut rates should the global economy slow significantly. These thoughts were echoed by a leading NZ bank in a commentary early in the week. Wheeler also remains wary of the impact that lower rates would have on housing demand and price inflation. Consumer price data released this morning has seen inflation remain near 16 year lows in the year to September, rising 0.4% y/y marginally higher than the 0.3% expectations but still well below the 2% RBNZ target. The GDT dairy price index release on Tuesday evening features next week in the data calendar. 

United States
Reducing expectations of a Fed rate hike in 2015 has placed the dollar under considerable pressure this week, leading to sharp falls against its G10 peers. Market concerns over divisions between Fed board members appeared this week after Fed members Tarullo and Brainard cast doubts over the appropriateness of raising rates this year, this coming after prior comments including those from the Fed chair Janet Yellen that indicated an increase in 2015 would be appropriate. On the whole, data out of the U.S. was disappointing and was led by a poor retail sales report on Wednesday which showed headline sales rising 0.1% last month against the +0.2% expectations. Core retail sales (excluding autos) fell 0.3% against the -0.1% expectation, whilst producer prices fell for the first time in 5 months. The Fed’s Beige book said the U.S. labour market had continued to tighten, but with little impact on wage growth. It also stated that the recent dollar strength was placing pressure on the U.S. manufacturing sector. U.S. consumer price data released on Thursday showed consumer prices recording their largest drop in 8 months during September as falling gasoline prices weighed. The headline number fell 0.2% m/m as expected. It was weighed down by a 4.7% drop in energy prices. The economic calendar next week is light, although tonight’s Reuters Michigan consumer sentiment index will be of interest.

United Kingdom
This week saw the release of U.K. inflation data which saw a decline of 0.1% in September from a year earlier and this follows after a flat reading in August. Expectations had centred on an unchanged reading. The release marked the first time since April that annual inflation has fallen below zero, the largest contribution to the decline came from lower petrol prices. Unemployment data released on Wednesday showed unemployment falling to a new seven-year low at 5.4% between June and August against expectation of no change. Average hourly earnings at 3.0% y/y were slightly softer than the 3.1% expectations. The declining unemployment rate suggests that spare capacity in the labour market continues to fall whilst more detailed labour market data suggests that the composition of employment growth is improving which should support wages growth going forward. Last week saw the BoE leave its policy settings unchanged and rates on hold at 0.5%, this weeks employment data suggests that the rate market’s delayed expectations of rate hikes may be becoming stretched in light of the more positive underlying economic fundamentals. Next week will see the release of September retail sales on Thursday.

Data this week saw the German ZEW index of economic sentiment drop to 12 month lows in October on concerns over VW and the strength of the global economy. The current conditions index fell to 55.2 from 67.5 (64.7 exp.), whilst the economic sentiment index fell 10.2 pts to 1.9 (6.0 exp). Eurozone economic sentiment fell in line with expectations to 30.1 from 33.3 in September. Comments from the ECB president Draghi last weekend reduced hopes for a rise in the intensity of QE after Draghi said the ECB was satisfied with the current QE. ECB governing council member Nowotny in contrast commenting overnight noted that EU inflation is “clearly” undershooting ECB targets and that in the current economic situation additional sets of stimulus instruments are necessary. These comments have put the EUR under pressure over the last 24 hours although like the other G10 currencies the EUR has been a significant benefactor of the generalised dollar selling this week. The ECB monetary policy statement on Thursday will be the key event to watch next week.

BOJ minutes from September’s board meeting revealed this week showed that some board members suggest that consumer prices may fall in the year ended March and that a close eye should be kept on oil prices. BOJ Governor Kuroda recently said that he anticipated inflation moving towards 2% next year and quashed expectations for fresh quantitative easing (QE) at the IMF meeting in Peru last weekend. Bank lending was seen rising 2.6% in September. This is less than August’s 2.8% gain as firms remained cautious about implementing capex spending. Sluggish machinery orders data revealed this week combined with slow domestic consumption and global growth continue to impact demand for credit. Later in the week has seen renewed demand for the JPY on the back of safe-haven buying. Data next week is light although September trade data to be released on Tuesday will be of some interest.

September employment data released last Friday disappointed markets after the unemployment rate rose to 7.1% (7.0% exp.), placing it some 0.5% higher than levels seen at the start of this year. The headline number was marginally better than expectations (+12k vs. +10k exp.), although the fall in full-time jobs which fell the most in nearly 4 years drove the poor result.  The CAD has benefitted from the general USD weakness seen during the week as the markets continue to re-price the timing for Fed rate hikes. Next week will be busy with the Canadian national election on Monday, the latest opinion poll indicates a close race between the governing Conservatives and Liberals. The BoC monetary policy meeting on Wednesday along with inflation data on Friday will also be closely watched.