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Economies of Note - 16th September

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

Like its trans-tasman counterpart the Kiwi, much of the volatility in the Australian dollar this week can be put down to the oscillations in global equities and risk appetite as the market positioned ahead of next week’s US FOMC monetary policy meeting. Dominating the economic calendar was yesterday’s August employment report which saw the AUD initially marked lower after the lower than expected employment growth numbers. A falling unemployment rate and increase in full-time jobs at the expense of part-time roles balanced the tone of the data however. Other events of interest included comments from the RBA Governor Kent who noted the less than expected depreciation in the overall real level of the exchange rate in response to the actual decline in the terms of trade. NAB business confidence on Tuesday rose from the month prior, although weak retail conditions remained a concern. Business conditions eased marginally on the month, strong conditions continued to be confined to the construction and major services industries. Westpac consumer confidence edged higher in September, although the result was disappointing given the recent declines in interest rates. Focus to conclude the week will be on tonight’s US data whilst locally the RBA minutes on Tuesday will form the first interest next week.

New Zealand
Risk appetite based around the gyrations of key global equity bourses has dominated the flow into the NZD this week. Much of the volatility in offshore equities can be put down to the recent commentary which has emanated from US Fed officials over US rates. For now the market ascribes a low probability of a hike (18%) when the FOMC meets next week. Focus locally this week was on yesterday’s second quarter GDP report which saw the quarters growth slightly disappoint, although an upwards revision to the previous quarter meant that that annual growth rate (3.6%) was only marginally less than expected. The rate ranks NZ as the country with the third highest growth rate in the developed world. Current account data on Wednesday underperformed expectations, although at less than 3% of GDP still remains healthy and lower overall during the past year. Food prices for August were seen rising 1.3% on Tuesday, although as expected create little interest. Looking out to next week all eyes will be on the RBNZ on Thursday for their latest interest rate decision.

United States
Trade in the USD, which has been relatively directionless overall this week, started with comments from various Fed members on Monday which highlight the need for caution and little need for urgency in removing policy accommodation. The comments put the greenback on the back foot heading into the data wrap which began yesterday. The data included weaker than expected numbers for retails sales, industrial production, and producer prices, although market reaction was relatively muted ahead of next week’s FOMC meeting. Other indicators included a moderate positive surprise in jobless claims and two regional manufacturing gauges, which both improved in September. The manufacturing data showed the Philadelphia region experiencing moderate growth and the New York region which remained mired in contraction. Focus for today will be on the August inflation data and the later Michigan consumer sentiment indicators.

United Kingdom
This week was a busy one in the UK whose highlight was the overnight BoE interest rate decision. This saw the board vote 9-0 to leave rates unchanged after the previous (also unanimous) decision last month to cut rates, although the members indicated a bias to ease further. The minutes noted an expectation for inflation to be lower than forecast although the Q3 GDP forecast was raised. Key data this week started with inflation numbers for August that disappointed at both the headline and core level. This was followed by positive labour market data which pointed to steady job creation and subdued wage growth as the unemployment rate remained unchanged at 4.9%. Data from the retail sector released overnight suggested consumer confidence has held up well in the wake of the Brexit vote. The data again surpassed expectations as sales rose 6.2% from August last year. Look for today’s US data to capture focus to end the week ahead of what looks to be a quiet week next week, at least as far as scheduled UK events go.

This week has been a particularly quiet week for the Euro which has seen it remain within a very tight range against the greenback. Data started with inflation numbers from Germany that matched preliminary estimates which had forecast an unchanged 0.4% y/y rise in August. The German ZEW showed investor confidence remaining unchanged in September although business confidence slumped the most since 2012. The gauge of current conditions dropped to 55.1 from 57.6, whilst the euro area measure was seen climbing to 5.4 (from 4.6) in a result that failed to meet expectations. Eurozone industrial production fell in July as output declined 0.5% compared with July 2015, the largest year-to-year drop since Nov. 2014. Declines in the manufacturing of capital goods helped drive the result and comes on the back of other recent data which showed investment spending falling in the June quarter. Inflation data for the EU released overnight echoed the earlier German result as it rose at the same pace in August as the month prior. The 0.2% y/y number which also matched preliminary estimates remains well below the ECB’s 2% target. Look for US data to take the limelight today with only wages and labour cost numbers featuring in Europe.

This week has been a relatively directionless one for the Yen (against the USD) despite the sometimes volatile movements that have been seen in global equities. Part of the reduced safe haven demand that should normally been seen in a week like this can likely be put down to news from the Nikkei newspaper. This report noted that the BoJ will conclude that benefits of a negative deposit rate outweigh the costs and that the board would discuss reducing long bond purchases in favour of short-term purchases- which lends weight to the argument that rates could be cut further next week. Data released this week started with core machinery numbers which beat expectations and the BSI large manufacturing index which jumped from the quarter prior. Revised industrial production data for July was disappointing and on an annualized basis output was seen falling 4.2%. Looking out to next week we have trade data on Wednesday although the real focus will be on the BoJ decision later in the day.

A lack of local incoming data this week has again meant that sentiment shown towards the Canadian dollar has been closely tied to the price of oil. This has seen the CAD marked lower on the back of the decline in the oil price which fell heavily on the back of a bearish report from the IEA on the oil surplus and data which showed a large weekly build in US petroleum products. Supply concerns also remain ongoing with focus on Libya and Nigeria who are both looking to restore output after recent disruptions. Comments from BoC Governor Poloz included ones on the widening economic imbalances in China which has the potential to stall Chinese growth (and pressure commodity prices). Poloz again noted the high levels of Canadian household debt and the slow and uncertain Canadian economic recovery. Focus to finish the week will be on today’s US data (inflation), oil and the local manufacturing sales report.