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Economies of Note - 19th February

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

The release of the latest Australian employment data dominated the economic calendar this week. The data for January was dominated by the loss of 40.6k full-time jobs and a rise in the unemployment rate to 6.0% (from 5.8%), albeit the series is a notably volatile one. The market reaction wasn’t particularly harsh as the data likely shows a return to a more realistic pace in the trend of job growth from that seen in the latter part of last year. The RBA minutes on Tuesday reiterated the central bank’s view that the Australian economy has shown a modest improvement, the RBA noted concerns over the strength of the Chinese economy. Other data of relevance included better than expected Chinese trade and Australian new motor vehicle sales numbers on Monday. Other Chinese data which included a marginally weaker than expected inflation print and better than expected loan growth numbers failed to garner much market interest.

New Zealand
The NZD has traded laterally this week in what has been a notably quieter week than most so far in 2016. Data released included a dip in the headline Q4 retail sales numbers, although the core number exceeded expectations. The Reserve Bank (RBNZ) quarterly inflation expectations survey showed expectations for inflation plunging to 22 year lows. The negative gap between expectations and the RBNZ’s inflation target set a new record. The latest GDT dairy price auction posted another loss, although the 2.8% fall was less than the market had feared based on the advance NZX futures pricing. Prices have now fallen at each of the last four auctions and sit some 33% lower than a year ago. The latest ANZ jobs ads data showed a decline in January and unwound the gains of the prior 3 months. Producer price data for Q4 showed a 0.8% decline in output prices in the quarter which was led by declines in dairy product manufacturing, dairy cattle farming and petroleum. Another relatively quiet data schedule next week will mean that once again pricing will take its lead from offshore events which includes U.S. data flow.

United States
The USD (DXY-dollar index) has drifted higher in trade so far this week. This after last week’s poor showing on the back of heavy selling as investors paired their bets for future Fed rate hikes after the financial market turmoil of recent weeks. The FOMC minutes release yesterday reflected this uncertainty and showed a stark split between members who were hawkish and those who were dovish. The theme of the minutes was one of uncertainty overall, with “many” members seeing increased downside risks and “a number” seeing a more uncertain inflation outlook. The members agreed that the risks to the outlook were difficult to gauge based on the present data flow. Data this week included a decline in the NAHB home builder index to the lowest level since May 2015 and a further decline in the NY Empire manufacturing index. Industrial and manufacturing production data both beat the consensus forecasts. The Philly Fed survey which again improved from the month prior suggests a tentative levelling-off in the manufacturing downturn. Better than expected jobless claims numbers indicate continued strength in the labour market. Inflation data is due for release tonight.

United Kingdom
The GBP sits lower in trade this week after the release of the latest U.K. inflation and employment numbers. The January inflation data was weaker than expected at both the core and headline level, again energy prices were seen as the dominating contributor to the undershoot in the data. The employment data was mixed, the averages earnings numbers showed higher wages growth than that expected, although this was counterbalanced to a degree by the higher than expected unemployment rate. Retail sales data is due for release tonight. Other events of interest included dovish comments from BoE member McCafferty, these put the GBP on the back foot at the start of the week. The latest news from the EU-UK negotiations indicates that little progress has been made on the reform demands made by the Cameron government. Cameron’s talks are attempting to persuade other EU leaders in Brussels to agree to his wish-list of reforms before holding a U.K. referendum on a British exit from the EU.

The EUR/USD has continued to drift lower in trade this week. The data calendar has been a particularly light one which has been dominated by the release of the ECB minutes and the latest ZEW economic indicators. The ECB minutes maintained the pressure already seen on the Euro this week after they revealed policy easing discussions at the last meeting in January. Comments at the start of the week from ECB president Draghi also highlighted the potential for policy action in March. The German ZEW survey of economic sentiment posted a decline in February in both the current conditions and expectations series. The euro-area ZEW data whilst beating expectations fell sharply from the month prior. Poor sentiment emanating from the recent poor performance of the European equity and credit markets are likely to have impacted the result. Immediate focus for the EUR is the result of the EU-UK discussions on reform negotiations at today’s summit meeting, current indications point to little progress having been made so far however.

The JPY is drifting higher in current trade against the USD, although sits near its opening levels of the week presently. A quieter week on the global equity bourses has meant flow in the safe haven Yen reduced this week, this after last week’s heavy global share market declines and follow through Yen safe haven demand saw the JPY post impressive gains against the USD. Data and commentary from various officials have been plentiful this week. Comments included ones from BOJ Governor Kuroda which stated the BOJ would continue with negative rates as long as needed to attain price goals and would continue easing on three dimensions if necessary (quality, quantity, and rates). Kuroda stated that underlying inflation was improving steadily and that he expected inflation to accelerate to the 2% price target. Data released included a larger than expected decline in industrial production and Q4 GDP disappointment. Trade data for January was close to expectations, although the decline in exports was again disappointing. Core machinery orders rose less than expectations.

The CAD has risen moderately in trade this week on pricing which has once again been dominated by sentiment around the energy markets. Further gains have been seen in oil pricing this week, although a notable correction lower occurred in overnight trade. Friday’s upwards momentum continued early in the week on the back of expectations of a deal to curtail production. Much of the gains then disappeared after disappointing news of an agreement between non-OPEC Russia and OPEC’s leader Saudi  Arabia to freeze output at January levels only, thereby effectively cementing the ~1 million barrels per day surplus. Iran joined other OPEC members Qatar, Kuwait and Venezuela in agreeing to freeze production (Iran only after increasing output to that seen before sanctioning). Further losses were seen overnight on the back of data which showed an unexpected build in U.S. inventories. Canadian data released so far this week has included much better than expected manufacturing and wholesale sales numbers. The more important latest inflation and retail sales data is set for release tonight.