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Economies of Note - 20th August

Written by Ian Dobbs on August 20th, 2015.      0 comments

It has been a quiet week for economic releases out of Australia with just the RBA minutes of any note. It’s fair to say they didn’t hold any real surprises or even shed much new light on thinking within the central bank. The tone of the minutes confirmed the bank remain very much in the neutral camp. They said accommodative policy settings remain appropriate, the economy is adjusting to shifting activity in the resource sector and the lower Australian dollar was helping. The added the USD could appreciate further against the AUD once the Fed start hiking interest rates. Further volatility in Chinese stocks this week has also impacted the AUD and it continues suggests the Chinese economy is still in very fragile shape. Next week is also pretty light on the data front with private capital expenditure the main focus.

New Zealand
There have been a couple of positive developments for the dairy sector in New Zealand this week. Firstly was the news that Russia has removed temporary restrictions on imports of dairy products from 29 companies in NZ. These restrictions came into effect during the August 2013 botulism scare. More importantly however, was the result of Fonterra’s latest dairy auction which produced a significant bounce in prices. The overall price index was up 14.8%, with key whole milk powder jumping by 19.1%. A better auction result had been expected but the size of the gains was still very encouraging. The only other data released so far this week was the producer prices index. Although both input and output prices fell in June quarter, by -0.3% and 0.2% respectively, that was slightly better than forecast. Low farm gate milk prices were one of the biggest factors pulling the index lower. Next week we have inflation expectations and the trade balance to digest.

United States
Mixed data on the housing market in the early part of this week failed to provide the US dollar with much overall direction. The market was largely treading water waiting for the more important releases of inflation data and the Fed minutes, both of which were out last night. Both of them have also pressured the USD to a degree. Inflation came in a touch softer than forecast for the month at just 0.1%. The market was expecting a reading of 0.2%. ‘Year on year’ core inflation remained unchanged at 1.8%. Somewhat more positively, a reading on average weekly earnings in the report did rebound to +2.2%, after the prior +1.8% which was the lowest outcome this year. The Fed minutes failed to provide any sign the central bank has settled on a decision to hike interest rate in the near future. They said the committee agreed to monitor inflation developments closely, with almost all members indicating they wanted to see further evidence that economic growth and the labour market were sufficiently strong to make them comfortable inflation would return to the long run objective over the medium term. The problem for the Fed is since this meeting took place three weeks ago, inflation has come in softer than expected and China has devalued the Yuan, which will only put further downside pressure on prices. Most other data has generally been supportive of the economic picture, but it’s going to be very hard for the Fed to pull the trigger on an interest rate rise in September with the prospect of inflation remaining very subdued. Still to come this week we have existing home sales, the Philly Fed manufacturing index and manufacturing PMI. Next week should also prove interesting with durable goods orders, GDP and the trade balance set for release.

United Kingdom
We have only seen one major release from the United Kingdom so far this week and that was inflation data. Year on year inflation was a touch stronger than forecast at +0.1%. The market was expecting a flat reading. It seems the better than expected result was due to a smaller fall in clothing prices compared to a year ago. Although the UK Pound got a significant boost from the data, longer term the outlook for inflation remains very subdued. Weakness in commodity prices, and oil in particular, combined with the continued broad strength of the GBP and the recent Yuan devaluation will all keep the lid on inflationary pressure. Tonight we get the latest reading on retail sales with the market expecting a gain of 0.4%. Next week sees a raft of second tier economic releases along with the second reading of quarter two GDP.

There has been nothing of note released from the Eurozone so far this week. Stronger current account data was countered by weaker construction output, but neither result impact the currency to any degree. The market is waiting to see manufacturing and service sector PMI data which hits the wires tomorrow night. The Euro has continued to be a reasonably strong performer however, thanks in part to broad USD weakness. Next week the focus will turn to the German IFO business climate index along with Spanish and German inflation.

We have seen a couple of disappointing results from Japan so far this week with a less than inspiring GDP report and worse than expected trade balance outcome. The markets focus is now on the Bank of Japan’s (BOJ) monetary policy statement due out later today. Although no action is expected at this meeting, many economists expect the Bank will be forced to ease further over the coming months. The weakness in China is having a big impact as is the lack of domestic consumption. Japanese car exports to China fell by more than 30% in the first half of this year. The potential for Japan to technically enter a recession in the third quarter of this year is very real. Next week we have household spending, inflation, employment and retail sales data to digest.

There has been nothing of significance released from Canada so far this week. That’s not to say the Canadian dollar hasn’t seen some action, because it certainly has. A further decline in oil prices in the past 24 hours has pressured the CAD. Oil is now trading at the lowest level in six years on the back of an unexpected rise in commercial stockpiles. With indicators of global growth very subdued at the moment it seems we could be waiting quite some time for a solid rebound in demand. Over the coming days we get data on wholesale sales, inflation and retail sales. Next week is looking very light data wise with just the raw materials price index of any note.