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Economies of Note - 18th November

Written by Ian Dobbs on November 18th, 2016.      0 comments

The dual influence of continued strength in the US dollar and weakness in key commodity prices (iron ore and gold) has seen the Australian dollar lose ground against the greenback this week. Local focus included Tuesday’s RBA minutes which had an upbeat tone around inflation and noted a positive outlook for growth given the recent improvement in the terms of trade. The main area of concern was around the labour market and lack of clarity over the amount of slack in the job market. The board noted the high level of part-time job creation and wages data this week pointed to record low wages growth, which has been partly a result of the recent divergence between full-time and part-time job creation. Employment data released yesterday was mixed. The gain in full-time positions (42k) partially reversed last month’s sharp fall, although the data did little to hide the loss in momentum of jobs growth which has halved since mid year to around 1%. Year to date employment has risen by only 43k overall.

New Zealand
It has been a relatively uneventful week in NZ for fresh incoming economic leads. News focus has centred on the impact and evacuation of tourists from the Kaikoura region after Monday’s large magnitude 7.8 earthquake. The earthquake also led to the delay of the main data of the week, which was the third quarter retail sales release after the Stats NZ building was seriously damaged in the shake. Influence on trade has once again largely come via the US dollar which has continued to gain this week on the back of expectations of a more growth friendly US fiscal policy under the Trump leadership. Local leads included the GDT dairy auction which posted another gain of 4.5% overall. Whole milk powder prices rose a smaller 3.2%. The latest move comes on the back of the 11% rise in the previous auction. Prices have now gained by over 40% since August. October REINZ house price data showed a 10.9% gain year-on-year, although sales fell sharply from the month prior and the same month a year earlier. Next week see the (delayed) retail sales data, immigration and trade numbers released.

United States
The tail-wind of the Trump election win has continued to drive the US dollar higher in trade this week. The move comes on the prospect of an expansionary fiscal push by the incoming government in 2017. This when combined with comments from Fed Chair Janet Yellen have helped the market move to near a unanimous expectation for a hike in December. Yellen’s testimony to the Joint Economic Committee included remarks that the election result hadn’t changed officials’ views that the case for a rate increase had strengthened since their last meeting, although she noted that it was too soon for the Fed to change its view until greater clarity on the new fiscal landscape was evident. Data released during the week included housing starts and permits for new construction which rose in October. The 25.5% monthly housing start gain was the largest in more than three decades. Inflation which increased at the fastest rate in two years from the year prior in October is a sign that inflationary pressures in the economy are building. Producer prices and industrial production came in flat (Oct.) and were both below expectations. Retail sales beat expectations and included upwards revisions to the previous month. Watch for further Fed speak today and data to start next week with existing home sales on Wednesday.

United Kingdom
This week has been a busy one for fresh data in the UK. Key releases started with October inflation numbers which were weaker at both the headline and core level. The 1.2% year-on-year number was 0.2% under expectations, although the market viewed the result as temporary given the one-off factors and recent plunge in the sterling. Data on the labour market showed UK unemployment falling to 11-year lows (4.8%) in the three months to September. Employment remained at a record highs, although the number of people who claimed unemployment benefits rose in October. The number was more than expected and the largest rise since May. Retail sales for October rose at their fastest rate in 14 years and jumped 1.9% from the month prior. Colder weather which boosted clothing sales and Halloween sales at supermarkets helped drive the result. Focus next week will be mainly on Friday when we receive numbers on the third quarter’s GDP and business investment.
Further gains in the US dollar have continued to apply pressure on the Euro in trade this week. The move comes as the market prices in the potential for more aggressive Fed rate rises post the Trump election win at a time where the ECB pursues an ultra-loose monetary policy. Local data this week included a smaller than expected monthly decline in industrial production and on consensus Q3 GDP data across the eurozone. German ZEW economic sentiment improved by more than expected in November. The rise to 13.8 was the highest level seen since June. The eurozone read also lifted, although the outperformance above expectations was more modest. Eurozone trade data for September outperformed and October headline inflation at 0.5% year-on-year was in line with expectations, although the monthly read was slightly under consensus. Focus to end the week is on further talk from ECB president Draghi today, whilst next week’s releases start with German PMI indicators on Wednesday.
Strength in the US Dollar has meant that the Yen has continued to decline in trade against the greenback this week. Data released during the week began with the Q3 GDP and industrial production numbers which both beat their expectations. The GDP result was driven by a surge in trade on the back of stronger exports although weak import numbers highlight soft domestic demand. Flat business investment also points to concern over future growth. Further Yen weakness was seen in recent trade after the BoJ announced its first fixed rate operation to buy JGBs in an unlimited quantity in the 1-5 year maturity in an effort to control the yield curve. The move which is part of a new initiative announced in September is aimed at countering a flattening yield curve, which it maintains is having a negative effect on the economy as low long term rates point to a weak inflation outlook. Looking ahead to next week we have trade data on Monday and inflation numbers on Friday as the key indicators of interest.

With no local leads of note the Canadian dollar has again looked mainly to the energy markets for direction this week. Oil prices jumped during the week on the back of reports that several OPEC members were actively engaging in last minute talks to overcome divisions ahead of its official meeting on November 30th. The lift helped the CAD trade off its recent lows after it had been under persistent selling pressure after the Trump US presidential win. Local key data focus for the week is on today’s inflation numbers. Earlier numbers on manufacturing sales showed a slowing in September from the month prior although the data was stronger than expected. Strength in the transportation equipment sector drove the result. Indicators of interest next week include September wholesale and retail sales although expect the US dollar and energy markets to be the key drivers once again.