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Economies of Note - 19th August

Written by Ian Dobbs on August 19th, 2016.      0 comments

Events of interest in Australia this week have been dominated by Tuesday’s RBA minutes and yesterday’s July employment data. The central bank minutes for the August 2 meeting clouded the outlook for interest rates and saw demand for the AUD rise on the day after the RBA contradicted their August 2nd message (which saw them cut rates) by noting that economic growth at 2.5-3.5% was expected to be above estimates of potential growth by 2017 (the August 2nd statement implied this range was not above potential.). The employment numbers released yesterday were mixed overall after the better than expected gain in jobs for the month were offset by a large fall in full-time positions. The data highlighted the issue the country is having as job creation moves from the resources sector. Wednesday’s data on wages created little fuss after the Q2 release met expectations, revisions to earlier data helped the year-on-year numbers marginally outperform expectations although the data highlights the endemic low wage inflation present in Australia.  Look for a quiet finish to the week with no major releases due out of either Australia or the United States.

New Zealand
Interest for the NZD peaked on Wednesday this week with the release of the latest GDT dairy price auction and later household labour force survey (HLFS). A better than expected outcome for the dairy auction provided support for the kiwi after prices rose by 12.7% overall. Whole milk prices (WMP) rallied by an even larger 18.9%. The price leap came as supply eased from major Southern Hemisphere exporters and Europe whilst the demand side benefitted from Chinese buying in the preferential free trade window. The HLFS employment data released later in the morning continued the positive tone after the Q2 unemployment rate fell to 5.1% (5.3% expected) as employment grew by a larger than expected 2.4% in the quarter, although changes to the methodology used to measure the data muddied the result. ANZ Consumer Confidence data released yesterday which declined in the latest read failed to make any impact on the positive sentiment. Look for a quiet end to the week with few leads of note until Wednesday’s US data (NZ time) and later NZ trade numbers.

United States
This week has been a poor one for the USD which has seen it close lower in each day of the week so far. Highlights of the week came in the form of Wednesday’s FOMC minutes of the 26/27July meeting which revealed a lack of consensus amongst its members, making a September rate hike unlikely. Fed officials were seen voting 9 to 1 in favour of holding rates steady at the July meeting as several noted the ample time that the Fed has to react if inflation began rising faster than current expectations. Comments from NY Fed Dudley (a Fed dove) and Atlanta Fed Lockhart gave some relief to the USD earlier in the week. Dudley noted that the markets were underestimating the risk of a September Fed hike whilst Lockhart spoke of his confidence that growth is accelerating, noting that 1 or 2 hikes could be seen this year. Key data released during the week started with July inflation numbers which were slightly weaker than expected on the back of falling energy prices. Housing starts were seen rising to levels just shy of post GFC highs in July although building permits issued for the same month foreshadowed some weakness ahead after they fell well short of expectations. Data from the manufacturing sector included the NY Empire State index which fell well short of expectations and the Philly Fed survey which matched the size expected.

United Kingdom
This week has been a busy one in the UK as it received various key data points which shed more light on the UK EU referendum implications for the UK economy. The data started with those on inflation and producer prices on Tuesday which were better than expected. The numbers showed headline inflation falling in July and core inflation remaining broadly unchanged at 1.3% year-on-year. Labour market data released the following day provided a positive surprise as jobless claims fell against expectations of a rise expected, although both the unemployment rate and average earnings hit expectations. Data from the retail sector released yesterday came in much better than expected rising 1.4% in July (vs. 0.2% forecast) at the headline level, core sales also easily outstripped expectations although with the UK in peak tourism season it remains to be seen how much of the result was aided by the recent fall in the pound (which bolsters tourist GBP receipts). The data has seen the GBP rally sharply against the greenback on the week although much of the move likely reflects the recent record short positioning on the IMM futures exchange. Look for a quiet end to the week given the void of key US and UK data today.

This week has been a good one for the Euro which like the other leading currencies has benefitted from a weaker greenback during the week. Data of interest started this week with the German ZEW confidence survey which saw the current conditions index easily beat its consensus. The sentiment component was weaker than expected however although remained in optimist territory whilst across the euro area the corresponding read was much better than that expected. Other releases have included trade numbers for June for the EU which beat expectations and EU inflation numbers for July which were marginally weaker than expected at the headline level. The Monetary Policy Accounts of the recent 20-21 July ECB meeting highlighted the need for further information to re-assess the economic outlook and added to expectations that there will be no change in policy in September. Look for a quiet end to the week with just German producer prices and the Spanish trade balance due.

The Yen has continued to move higher against the greenback in trade this week as sentiment towards the USD took a hit after Wednesday’s US FOMC minutes reduced expectations for a Fed September rate hike. Key data from Japan had little influence on trade this week. The second quarter GDP released on Monday was well short of expectations and came as business spending again contracted during the quarter. Industrial production (IP) figures for June were better than expected although neither the IP data nor the simultaneous release of improving capacity utilization numbers could garner any market interest. Trade data for July released yesterday lifted above expectations on the back of a larger than expected decline in imports for the month. Look for a quiet finish to the week today given the lack of local and US data to end the week. Expect little to come (in the way of intervention) from recent official comments over the recent moves in the Yen.

Further strength in oil prices which propelled around 3% higher in overnight trade has once again helped the Canadian dollar rally against the greenback this week. The latest jump in the price of crude came amidst further speculation of production freezes amongst major producers and as inventory data released the during the week showed US commercial crude oil inventories falling by 2.5 million barrels for the week ended August 12th. The fall contrasted with a build of near a million barrels expected although current stores at 521 million barrels remain at historically high levels. Data released out of Canada so far this week has been sparse ahead of today’s key releases on inflation and the retail sector. Manufacturing sales for June released on Tuesday rose by more than expected. The 0.8% growth registered showed factories rebounding strongly from last month’s one-per-cent fall on the back of gains which were led by machinery and transportation equipment.