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Economies of Note - 17th January

Written by Ian Dobbs on January 17th, 2014.      0 comments

1:45pm(NZT)
Australia
The key piece of data for Australia this week was the employment numbers released yesterday. The market was looking for a modest gain of 10.3k, so when the actual figure of -22.6k hit the wires, it was a big disappointment. Looking into the detail of the report only made matters worse. Full time employment fell by -31.6k, while part time employment gained by 9k. There were also downward revisions to previous numbers. There really wasn’t anything positive you could take out of the report. The unemployment rate did stay steady at 5.8% but that was only because the participation rate fell. As a result of these dismal figures the Australian dollar immediately came under intense pressure. Although the Reserve Bank of Australia (RBA) won’t be impressed by the release, it is only one data point and it will take a number of other soft results to trigger another rate cut. That being said, the market has priced in close to a 50% chance of a cut by July. Next week’s numbers in the form of consumer confidence and inflation data will be very closely watched.


New Zealand
It has been another quiet week for New Zealand economic data. The highlight was Tuesday’s business confidence figures that came in at a 20 year high. A net 52 percent of businesses were optimistic, which is a big jump from the previous result of 38 percent. We have also seen QV house prices come in at +10% year on year for December. The QV index is now 12.5% higher than its previous peak in 2007. Data like this has helped the New Zealand dollar remain well supported, holding up a lot better than most other currencies against the USD as it gradually recovers from the selloff seen in the wake of the US employment numbers last Friday. Next week we get inflation data and the business NZ manufacturing index.
 
 
United States
After last Friday’s poor US employment numbers the market was a little nervous ahead of Tuesday night’s retail sales data. A soft reading here would have started to raise questions about the US recovery, and seen the USD take another hit. In the end though there was a big sigh of relief as the actual number was solid enough. Headline retail sales came in on expectation at 0.2%, while the core retail sales number (retail sales less autos) was a surprisingly strong 0.7% against an expectation of 0.4%. This helped the USD stage something of a recovery as did comments from the Fed’s Plosser. He said the December jobs report was likely hurt by cold weather and he expects unemployment to be at 6.2% by year end. He also believes the economy is on a firmer footing that it has been for the past several years. Data over the rest of the week has been consistently coming in at, or close to, expectations and has therefore had no real impact on the positive outlook for US growth in 2014. The week is rounded off with tonight’s industrial production and consumer sentiment numbers, both of which will be closely watched. Next week the economic calendar is a little lighter with only manufacturing PMI, existing home sales, and weekly jobless claims on any note.


Europe
There hasn’t been much in the way of key data out of Europe this week. Industrial production data on Tuesday was a touch better than expected, but this was counted Wednesday’s trade balance that came in a little below expectations. The second reading of inflation showed no surprises confirming the previous result of 0.8%. In their monthly bulletin the ECB stressed accommodative monetary policy is here for the foreseeable future as they expect a prolonged period of low inflation. Many economists are expecting the central bank to take further action over the coming months, although the ECB’s Coeure seemed to pour cold water on the idea of further LTRO’s (long term refinancing operations) in comments he made overnight. He did however say they could cut deposit rates into negative territory which would effective charge banks for depositing funds with the ECB.  Next week we have figures on economic sentiment, French and German manufacturing, and the current account to digest.


United Kingdom
So far this week the only key piece of data to come out of the United Kingdom has been inflation. The consumer price index pulled back a touch to 2.0% from 2.1% previously. That is bang on the Bank of England’s (BOE) target and it’s also the lowest level in four years. It is still however substantially above the rate of growth in wages which is currently running at 0.9%. The drop in inflation was largely driven by food prices rising at their slowest rate since 2006, which is good news for consumers. On Wednesday Governor Carney testified in front of MP’s on the the Treasury committee where he played down the threat of a UK housing bubble. Carny made the point that prices were appreciating from a relatively low base, and that in instances like this the central bank was more interested in keeping a sharp eye on credit growth. His assurances won’t stop the growing debate around house prices in the UK and rightly so. With the economy expanding and interest rates at record lows, the risks are there for imbalances to grow. Tonight we get the latest reading on retail sales from the UK and next week we have the BOE minutes followed by the unemployment rate.


Japan
Tuesday saw the release of Japanese current account balance for November, which has continued to deteriorate. The JPY 592.8 billion deficit was the largest current account gap on record. At this point there is not much they can do about it apart from re-start some nuclear power stations. The deficits are being driven by massive energy imports and a weakening yen. The economy minister was on the wires saying they need to start paying attention to the current account deficit as the country's standing as a major trade nation is wavering. The rest of the week saw mixed data with core machinery orders printing on the strong side, however this was offset by the Tertiary Industry Activity index that came in below expectation. We also saw comments from Bank of Japan (BOJ) Governor Kuroda who expects the economy to continue to recover moderately even after the planned sales tax increase. He believes inflation is likely to continue to rise smoothly toward the 2% target. We will hear more from Governor Kuroda after the BOJ rate meeting on Wednesday next week.


Canada
The poor run of data out of Canada came to a halt this week, but that’s only because there wasn’t actually anything released! The Canadian dollar has remained on the defensive after last Friday’s poor employment figures capped off a very forgettable week for the currency. Next week will prove interesting with a raft of key data set for release as well as the Bank of Canada (BOC) monetary policy statement. Morgan Stanley is predicting the BOC will move to an easing bias and this has helped keep the CAD under the gun. Manufacturing sales, retails sales, and inflation are the other releases to watch.
 
 

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