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Economies of Note - 21st October

Written by Ian Dobbs on October 21st, 2016.      0 comments

Dominating news in Australia this week was yesterday’s poor employment report for September. The volatile series saw a 25k miss in the number of jobs for the month when measured against expectations, although it was the 53k drop in full-time employment which was the area of major concern. This as the Australian labour market continues to add part-time ‘gig economy’ jobs at the expense or more well paying full time positions. Other data included the NAB quarterly business confidence release which firmed from the quarter prior and the RBA minutes which continue to point to a low prospect of a November rate cut. The board noted a reasonable prospect of sustaining economic growth and a gradual rise in inflation and pointed to next week’s Q3 CPI report (on Wednesday) as an important driver for their updated economic forecasts which would be available at their next meeting.

New Zealand
The New Zealand dollar has felt the weight of its weaker Trans-Tasman counterpart the Aussie in trade over the last 24 hours. The move lower came after a poor employment report in Australia yesterday, although buying against the AUD on the day and stop-loss buying through .7250 saw its gains reach over 2.5% on the week against the greenback at one point. Dominating local events was Tuesday’s Q3 inflation report which delivered above expectations at 0.2% for the quarter (against a flat expectation), although the number is still well below the RBNZ’s 1-3% targeted range. Housing related prices were seen to be making the biggest upward contribution. The latest GDT dairy auction saw prices rise a modest 1.4% overall. A steeping in the WMP curve is a sign of continued buyer interest outside of the Chinese free-trade window and points to further consolidation in pricing in the weeks ahead.  Next week will see just trade data on Thursday so look for direction to once again come from offshore.

United States
It has been a relatively quiet week for the greenback overall this week after the September inflation read largely conformed to expectations. Levels rose to 23 month highs at 1.5% year-on-year, although the core read was lower at 2.2%, a level which supports only gradual monetary policy tightening. Data from the housing market was mixed. Housing starts disappointed and fell 9% m/m in September, although a strong gain in building permits is an indication that residential construction should pick up in the months ahead. Existing home sales grew strongly from the previous month’s decline, although the market remains under pressure from a lack of inventory and declining affordability. Manufacturing activity in the Philadelphia region eased modestly, but the better than expected read included solid details on new orders and shipments. Looking to the week ahead we get data on consumer confidence, new home/pending home sales, durable goods and Q3 GDP (Friday) amongst others.

United Kingdom
This week was a busy one for key data in the UK which started with inflation numbers on Tuesday. The 1% year-on-year rise was larger than expected and the highest level seen in two years. Clothing had its largest rise since 2010 and fuel which was declining a year ago was also more expensive. Inflation is expected to rise further next year, although (so far) the Office for National Statistics (ONS) claimed “no explicit” evidence of the weaker pound being the reason for the higher prices. Data from the labour market was better than expected given the smaller than expected rise in claims and strong jobs growth. Retail sales numbers released overnight provided the only disappointment of the week after they remained flat from August. Most analysts put the flat patch down to the recent warmer weather, although issued a note of caution over the role that the falling sterling may play on rising prices and future trade. Focus for next week will be on Thursday’s Q3 GDP report.

Attention for the week in Europe was on the overnight ECB monetary policy meeting. This saw the ECB leave policy unchanged and offer little in the way of guidance towards future policy. President Draghi explained that there had been “no discussion” about policy changes or ‘tapering’ and indicated that asset purchases were “unlikely” to come to a sudden stop. A more significant communication around the stimulus programme was foreshadowed for the December meeting. Data releases started with euro zone inflation numbers that showed a small 0.4% as expected year-on-year rise. German producer prices were weaker than expected, although the August current account surplus exceeded the size expected. Expect a quiet end to the week, albeit eyes will be cast to the EU leaders summit for any headlines which come out on the Brexit issue. In focus next week will be indicators on manufacturing, various regional inflation reads and the German IFO business climate data.

A lack of fresh news has ensured lacklustre trade in the Yen this week. The main indicator of interest was the Industrial Production figures which rose by a more modest amount than that expected in August, although the levels achieved were 4.5% above those attained in the same month last year. Capacity utilization improved by 2.6% in the month which was the largest rise since March. Comments from the BoJ Governor Kuroda beat a familiar path after he gain reiterated the central bank willingness to add further stimulus to boost growth should it be required. Kuroda pointed to inflation which is slightly negative to flat, this as a survey by Reuters of corporate Japan showed a quarter of respondents saying that they see the BoJ attainment of its inflation goal as impossible. Look for a more interesting week next week which starts with trade and manufacturing numbers on Monday. Data on employment, inflation and household spending will be released on Friday.

Dominating focus for the week in Canada was Wednesday’s Bank of Canada (BoC) monetary policy meeting. The meeting and associated commentary induced significant volatility in the CAD which initially rose after the central bank left rates unchanged (as expected) and spoke of economic strength. The strength reversed sharply however, after Governor Poloz noted that the bank had discussed the possibility of adding economic stimulus and issued downgrades to its 2016/17 growth and inflation profile. Housing was forecast to reduce GDP by 0.2% in 2017 and the central bank noted that the new housing measures should mitigate the risks to the financial system over time. On the data front we have had manufacturing sales numbers which outperformed expectations although the real focus for incoming data will be on today’s inflation and retail numbers.