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Economies of Note - 20th January 2017

Written by Ian Dobbs on January 20th, 2017.      0 comments

Australian data this week has been largely supportive of the Australian dollar. The key release was employment data on Thursday. The headline number came in stronger than forecast at +13.5k, but tempering this were negative revisions or prior results. The unemployment rate ticked up to 5.8%, but this was due to an increase in the participation rate. Other data of note this week included Westpac Consumer Sentiment, which edged up slightly following a decline in December, and inflation expectations which rose solidly to 4.3% from 3.4% prior. Next week the only release of note will be the actual inflation data set to hit the wires on Wednesday.

New Zealand
Data from New Zealand this week hasn’t had a big impact on the currency as broad movements in the value of the USD continue to be the major driver in the wider FX market. We did see a solid result from the NZIER Business Confidence survey which showed business confidence ended 2016 on a strong footing. It also signalled that inflation may well creep higher over the coming year with business now having much more pricing power. Tuesday night’s dairy auction resulted in only a small increase in the GDT price index of 0.6% and its impact on the market was therefore very limited. Building consents data for November showed the trend is still heading in the right direction, but it continues to be below the overall level required to keep up with growth in the country's biggest city. In the year to November 2016 30,303 homes were consented in NZ, which is an increase of 13%. Around 40% of those were for Auckland. Next week we have inflation data to draw focus along with a speech from RBNZ Governor Wheeler.

United States
Data from the United States this week as been mostly positive suggesting Trump is going to take over the reigns as President of an economy with solid momentum. Fed Chair Yellen confirmed as much this week saying that a ‘few’ interest rate hikes this year could be appropriate. The market is factoring in three rate hikes for 2017 and that looks pretty reasonable at this stage. US economic data has also been positive this week with unemployment claims, housing starts, and the Philly Fed Manufacturing Index all coming in stronger than forecast. President Elect Donald Trump continues to add volatility to the market with his comments and tweets. He believes the USD is overvalued and that makes it difficult for US companies to compete with like of China. His inauguration tonight will no doubt prove interesting viewing, but key for the US dollar and the US economy going forward will be the extent to which he actually manages to enact his policies. Although he has the benefit of a Republican congress, funding for his policies needs to come from somewhere and the US doesn’t have a whole lot of room on the debt front. Key data next week to watch out for includes GDP and Core Durable Goods Orders.

United Kingdom
The focus for the market this week in the UK was always PM May’s speech in regard to Brexit. The market was expecting a tough stance from May and in the end that’s exactly what she delivered. The UK will make a clean break from the EU and take control full of it boarders. It will not remain a full member of the EU customs union. She talked about an ‘outward looking’ and ‘truly global’ Britain suggesting they will be keen to quickly start negotiating trade agreements with many other nations and regions. The UK Pound had a very positive reaction to the speech, largely because so much negativity had been factored in beforehand. Economic data has also been supportive this week with inflation, earnings and employment data all printing stronger than forecast. We have retail sales numbers tonight to draw focus, then next week GDP data will be the main event.

Data from Europe this week has been something of a mixed bag, and its impact on the EUR therefore limited. The main focus was on last night ECB meeting although no change in policy stance was ever expected. What was of interest to the market was how ECB President Draghi viewed the outlook for inflation. Germany seems to be getting a little itchy about the prospect of rising inflation, but Draghi himself brushed it aside. He said the ECB will look through the surge in inflation as they viewed it as largely energy based. He added the central bank hasn’t discussed reducing stimulus. The main takeaway from the meeting is that the central bank will continue to focus on accommodative policy and that they don’t see any ‘convincing’ signs of sustained Eurozone inflation. Next week we have manufacturing and service sector PMI’s to draw focus along with the German IFO Business Climate Index.