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Economies of Note - 1st December

Written by Ian Dobbs on December 1st, 2016.      0 comments

It has been a relatively quiet week of trade in the Australian dollar this week which has seen much of the early week gains against the US dollar relinquished in trade overnight (despite higher oil on the OPEC agreement). The recent underperformance was not helped by building approvals data yesterday which fell by 12.6% in October (+2.0% exp.) which followed up on the back of September’s sharp 9.3% decline. The fall cemented talk of a peak in the current cycle and included a huge 24.8% fall in apartment approvals. The data comes as the ANZ CEO warned yesterday over the large excess supply of apartments in Australia’s three largest cities. New home sales released on Tuesday were also disappointing and fell to two year lows in October. Private sector credit numbers which marginally edged expectations has been the only positive so far. Capital expenditure/business investment data will form the focus for today whilst tomorrow we see the release of October retail sales.

New Zealand
This week has been a relatively uneventful one for fresh data in NZ. ANZ business confidence released yesterday eased in November to a net 20.5% (from 24.5%) of firms who were optimistic about the economy. All sectors noted reduced accessibility to credit, although the second fall in as many months does little to suggest against an economy which remains on an upwards path given the strong employment intentions, own-activity and profit outlook in the survey. Terms of trade data released this morning showed a deterioration in the third quarter from the quarter prior. The NZ Financial Stability review was not market moving, although contained further discussion around debt to income ratios being introduced in 2017 should the housing market fail to slow. Finance Minister Bill English wouldn’t comment on whether the government would approve the restrictions if the RBNZ was to request their use. Building consent and visitor arrivals data will conclude the week tomorrow. Expect little impact with direction to come from the US data and USD sentiment.

United States
This week has been one of consolidation so far for the US dollar after the large gains of recent weeks. Key data kicked off with the Q3 GDP numbers which were revised higher to 3.2% (3.0% exp.) on the back of a lift in personal consumption. Consumer confidence lifted strongly on the back of the Trump election victory and also easily beat expectations. Earlier the Dallas Fed Manufacturing Activity Index survey had also beat expectations, also by a wide margin. Comments from corporates indicated optimism around the new government, a view which mirrors the pick-up in confidence amongst consumers. ADP employment data also easily beat expectations and has set the market up for high expectations on the Nonfarm payrolls employment data tomorrow. Other data has included the Chicago manufacturing PMI which also outstripped its consensus and pending home sales which marginally underperformed. In focus later today will be the key ISM Manufacturing PMI indicator.
United Kingdom
It has been a relatively quiet week in the UK this week which has seen much of the focus so far centre on the overnight BoE Financial Stability report. The report noted the rise in US market interest rates post the Trump win which Governor Carney said could lead to a destabilizing (sharp) move higher in global borrowing costs. The risks of reduced global trade to emerging market economies with high debt was also aired. On Brexit Carney repeated his view over the lack of clarity around the formal exit talk priorities which could force banks to move operations out of the UK prematurely. Data released so far has included stronger than expected Mortgage Approvals which reached the highest levels seen since March in the latest read. Consumer credit which posted an annual growth rate of 10.5% last month was the strongest since October 2005, according to BoE data released on Tuesday. Focus to conclude this week will be on house price and manufacturing PMI data later today. Construction PMI data will follow tomorrow. The services PMI read is set for release on Monday.
It has been a busy week of data in Europe so far, although the mainly lower tiered releases have had little influence on trade in the Euro which has sidetracked against the US dollar for most of the week. German harmonised inflation, which was flat in November disappointed, although the euro zone and Italian reads conformed to the market’s expectations. Disappointments came via the euro zone services sentiment indicator, the business climate index, and the business and consumer survey. German unemployment remained level at 6% as the number of unemployed fell just 5k in November (on expectations). Comments from ECB President Draghi noted the uncertainty posed by elongated Brexit talks and forecasts for euro zone inflation which is forecast to reach the 2% ECB target by 2018/19. Manufacturing PMI indicators form the focus for today whilst next week sees the release of the service and composite PMI reads on Monday.

The small recovery in the yen seen at the start of the week against the greenback proved short lived after it fell to fresh lows not seen since the start of March overnight. The move reflects a continuation of the sharp trend which has been seen as investors have deserted the relative safety status of the yen in favour of the US dollar which looks set to benefit from higher interest rates and fiscal stimulus under the incoming Trump government. Data released in Japan this week started with household spending numbers which disappointed in October, although the year-on-year read which declined 0.4%, was stronger than expected. Unemployment at 3% was on expectations although the job-applicant ratio edged slightly higher to 1.40. Other data included better than expected retail sales and industrial production which marginally beat the (low) estimate. US dollar sentiment will continue to dictate trade into the week’s end. Next week’s Japan focus will centre on the third quarter GDP numbers due on Thursday.

All eyes this week were on the outcome of the overnight OPEC oil producer meeting which concluded in Vienna with the agreement to cap output at 32.5 million bpd, a cut of 1.2 million bpd. The deal will come into effect at the start of 2017 and will last for six months but can be extended. The agreement is subject to a further cut of 600k bpd from non-OPEC producers. Oil prices understandably reacted positively to the news, although the CAD has been surprisingly well contained as rising US interest rates continued to bolster demand for the US dollar. Data released this week has been dominated by the overnight Q3 GDP release that beat expectations as the economy grew 0.9% in the quarter, or 3.5% on an annualized basis. Exports of goods and services drove the strong rebound from the prior quarter. Both of the industrial product and raw material prices indices also outperformed their consensus estimate. Local focus now turns to Friday’s employment numbers. Expect tomorrow’s RBC manufacturing PMI data to garner just a passing interest. Focus next week will be on Wednesday’s BoC interest rate meeting.