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Economies of Note - 17th June

Written by Edited by Ian Dobbs on June 17th, 2016.      0 comments

Global investor sentiment and uncertainty around the pending UK referendum on EU membership has continued to dominate the sentiment displayed towards the AUD this week. This when combined with various central bank meetings have meant external events have taken priority over the data out of Australia this week which saw yesterday’s dominating May employment release come in very close to expectations yesterday. The gain in jobs (17.9k) was made up entirely of a rise in part-time roles although the hours worked increased 1.7% and reversed a three month old trend of declining hours worked in the economy. The NAB survey of business conditions showed a continued recovery in conditions outside the mining sector as conditions remain well above the long run average. The survey showed business confidence slipping to its lowest levels since August last year however. The Westpac report on consumer sentiment also dipped and comes on the back of the bounce in confidence that was seen last month after the RBA cut interest rates. The data calendar next week is very quiet in Australia with just Q1 numbers on house prices due on Tuesday.

New Zealand
Brexit uncertainty has been the dominant theme in the markets this week and comes as the market weighs up the possibility of a UK EU exit disturbing the financial markets and pulling on global growth for a considerable period afterwards. The concerns have led to bouts of risk aversion and selling in global equities over the course of the week although so far the NZD has been relatively insulated from ‘risk’ selling as investors weighed up further data that shows the NZ economy is in sound shape. The latest news showed growth accelerating to 2.8% y/y whilst the Q1 current account moved strongly into a surplus from the prior quarter, helped in part by strong tourism flow to the services balance and falling imports which outpaced the decline in exports. A smaller current account and lower external debt to GDP levels are seen as key factors in the relative resilience of the NZD to the recent bouts of global risk aversion. The latest dairy auction saw overall prices remain unchanged from the previous auction, although key whole milk powder prices (NZ’s largest export) fell 4.5%. Expect another choppy week next week as the UK head’s to the polls for the EU referendum. Local events of interest are absent, with only migration numbers due on Wednesday.
United States
This week has been a busy one for the USD and comes on the back of heightened volatility in financial markets as investors grapple with the increased global uncertainty that is posed by a potential UK exit vote from the EU next week. Local events were led by Wednesday’s FOMC meeting which saw the Fed remain on hold as expected. Chair Yellen noted the risks posed by a Brexit and the renewed global market volatility and recent mixed US labour market data. The ‘dot plot’ of expectations on rates also saw a sharp rise in Fed members who only saw the likelihood of one rate rise this year (6 vs. 1 prior) although the median remains at two further hikes. Key data this week started with retail sales which exceeded expectations (at both the headline and control level) and a 0.3% revision higher in the Atlanta Fed GDPNow Q2 estimate. Data on industrial and manufacturing production failed to meet their estimates although the NY empire manufacturing index rebounded from the prior period (although the employment component of the index was soft). The latest numbers on inflation disappointed slightly although the core numbers printed in line with expectations. The Philly Fed manufacturing index rose sharply whilst the weekly jobless claims marginally underwhelmed. Data on housing and building which is due today will round out the key data for the week.

United Kingdom
Volatility continues to remain extreme in the GBP this week as polling on the UK EU referendum continues to have the market on tender-hooks. The polls currently point to an ascendancy in the leave vote although present a different view to that taken by British betting agencies who favour the UK remaining as they point to the large ‘undecided’ vote which typically favour the status quo on voting day. News on the issue included headlines which misreported a vote result and issued month old polls, this as implied GBP/USD volatility reached record highs. The BoE central bank meeting yesterday saw the central bank leave rates on hold as expected and warn of the risks posed to the global economy should the UK leave the EU. Data released over the week included inflation numbers that were slightly lower than expected. The labour market data was encouraging as the unemployment rate continued to decline (to 5.0%) and average earnings improved from the period prior. Retail sales numbers for May released yesterday also impressed although again expect market moves to be dictated by Brexit news next week as we head into the referendum on Thursday.

Trade in the Euro has played hostage to events globally this week as investors look across the English Channel to incoming news on the UK EU referendum, an issue which has had a strong influence on investor appetite for risk during the week. Decisions from key central banks during the week were also heavily influenced by the issue as they stood pat in the lead-up to next week’s referendum. Important data out of Europe over the week has been minimal. The latest industrial production numbers across the euro-zone showed a larger than expected rebound from the period prior whilst the euro-zone trade balance which beat expectations showed an easing from the month prior. Euro-zone inflation data released yesterday beat expectations by jumping 0.4 % (m/m) from the prior read. Comments from the ECB’s Nowotny included ones which noted the ECB standing ready to act to add liquidity if required should the UK vote to leave the EU. He noted that provisions had also been made for mutual liquidity help between the ECB and BoE if required.

The event calendar in Japan this week has been dominated by yesterday’s BOJ monetary policy meeting. This saw the central bank refrain from any further easing despite the current weak domestic inflation levels. The move (which came as no surprise) saw the Yen spike to two year highs (against the USD) in part likely on the back of the momentum already seen after the US Fed earlier had displayed greater caution over the prospects for US growth (USD-). Safe haven flow has also been another key factor this week (JPY+) and comes as the market continues to grapple with the wider implications on global growth of a potential UK exit from the EU. This issue was also likely a factor in the BOJ decision not to ease further as it looks to retain the ability to react down the track should the UK exit. The JPY strength has once again drawn the attention of key policy makers who again noted that they are watching developments in the FX space closely. Data of interest during the week has included numbers on industrial production which marginally exceeded the forecast although failed to gain any market traction.

A quiet data week in Canada so far has meant that once again the market has taken its lead from developments in the energy space. Concern over the implications of a UK exit from the EU has continued to unnerve investors this week. The heightened volatility and risk aversion has helped the price of WTI retrace around 6% so far as investors weigh up the risk to global growth posed by a UK EU exit. Data of interest over the week so far has included manufacturing sales numbers which bounced from the month prior although the main event on the economic calendar is the May inflation report later today. Comments from BoC Governor Poloz had little impact on pricing as he reiterated the impact to Q2 growth from the recent Alberta wildfires and spoke of the likely continued reduced investment in the oil sector, even despite the latest oil price rally.