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Economies of note - 18th October

Written by Ian Dobbs on October 18th, 2013.      0 comments

2:00pm (NZT)
Australia
The major release from Australia this week was the minutes from the last RBA monetary policy meeting. They confirmed the RBA are happy to sit tight with current policy settings and see how things pan out from here. They see the effects of previous cash rate cuts still flowing into the economy, and although further cuts aren't ruled out, there is little chance of one in the near term. Also this week we got the Westpac leading index which signaled momentum in the economy is flagging somewhat. This was followed by NAB business confidence numbers which showed an improvement over the previous quarter. Neither release had a material impact on the currency. Next week we have inflation data and the RBA annual report to draw focus.


New Zealand
The key piece of data from NZ this week came in the form of inflation for the September quarter. The 0.9% increase was higher than expectations for a 0.8% gain, and a big increase over the June quarters result of 0.2%. The annual pace of inflation is now running at 1.4% and a this only serves to increase the likelihood of a hike in interest rates by the RBNZ in the first quarter of next year. This week we also had consumer confidence data that supported the view of a robust economy with an increase of 2.9% for October. The coming week sees a reasonably light economic calendar with only credit card spending and trade balance data set for release.


United States
It was an interesting week in the US with some pretty big ramifications for markets going forward. The big news obviously was that a deal was reached to reopen the government and extend the debt ceiling. As most had predicted the politicians pushed it until the 11th hour before coming to their senses. This brinkmanship was cited as one of the factors for ratings agency Fitch putting the US on “credit watch negative”. The next step will be a cut from ‘AAA’ and that could well happen in the new year when we can likely expect to go through this all again. That is because the deal reached at this time is really no deal. All they have done is buy themselves time by kicking the can down the road. There has been no overall solution that reconciles the differences between the two parties, or lessens the chance of the same thing happening again. We are now looking at a deadline of January 15, for a deal to fund the government to be agreed, and February 7 for an agreement on the debt ceiling. The biggest implication of all this is that the Fed is now very unlikely to taper quantitative easing purchases until this uncertainty is removed. At the moment March looks like a reasonable bet, and only then if the data supports. It’s obviously a fluid situation, but pushing tapering back six months or so is positive for stocks, risk assets, and the NZD and AUD. Once the US government employees come back from their forced paid holiday, we should get an updated schedule of when they are planning to release the economic data that has been put on hold. If they are efficient, next week could be big one for data releases.


Europe
Data from Europe this week has reinforced the outlook for a continuing gradual recovery in the economy. German economic sentiment was surprisingly strong coming in significantly above expectation. However, that was followed up by inflation data that showed little sign of life. Inflation for the year to September fell to 1.1% which was its lowest reading in three and a half years. It is something that is obviously a concern for the ECB with many comments over the past week suggesting as much. It certainly provides the ECB with room to stimulate further if they see fit and recent weeks have seen them state they will do just that if need be. Current account data last night showed the regions surplus increased from last month, although it was a touch less than expected. Next week we get consumer confidence, manufacturing and service sector surveys, and the German business climate index.


United Kingdom
It has been a week of mostly supportive data for the UK economy. The housing market continues to recover with the latest index showing prices up by 3.8% for the past 12 months. We saw inflation data that held steady at 2.7% against expectations of a small fall, and on Wednesday night unemployment claims had their biggest monthly fall in 16 years. The employment market, which defied all dire predictions during the financial crises, continues to perform strongly. The unemployment rate, at 7.7%, is still a far way away from the Bank of England’s (BOE’s) trigger of 7%, but that could fall quickly if the economy continues its current path. London is also cementing its position as the dominant centre, outside of China and Hong Kong, for renminbi trading with George Osborne announcing special terms for Chinese banks setting up in the UK. The announcement has drawn a quick and scathing response from bankers in the US. Last night we got the latest retail sales data and that showed strength as well, coming in above expectation at 0.6%. Next week we get data on public sector borrowing, the BOE minutes, and the preliminary reading of GDP to digest.


Japan
There has been nothing released from Japan this week to materially change the economic outlook. The only data released was revised industrial production numbers that came in below expectation. But with all the focus on the US political situation they had no real impact. Next week we have the trade balance and inflation data to digest.


Canada
There has been very little data out of Canada this week although tonight we do get inflation data to focus on. The only other release was manufacturing sales which disappointed with a decline of 0.2% against an expectation of a 0.3% gain. The Canadian PM came out saying he intends to introduce legislation that requires a balanced budget in ‘normal economic times’. It would also lay out a concrete timetable for returning to balance in the event of an economic crisis. Next week should be a much more interesting one with wholesale sales, retail sales, and the Bank of Canada rate review.
 

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