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Economies of Note - 22nd May

Written by Ian Dobbs on May 22nd, 2014.      0 comments

Tuesday’s RBA minutes provided no surprises and little in the way of fresh insight into thinking at the central bank. The currency has been under pressure this week and comments from assistant Governor Debelle when he spoke on Tuesday afternoon were certainly designed to help push the AUD down. He suggested that lower capital inflows may result in a lower Australia dollar and this did weigh on the currency a touch. However, a good chunk of the selling pressure has come from a continued decline in iron ore prices. Iron ore futures recently traded below $100 for the first time since mid-2012 and inventories have climbed 30% this year, which suggest we won’t be seeing a turnaround anytime soon. Also weighing on the currency this week was consumer sentiment data that fell by 6.8%. Some of this decline is being blamed on the budget, but sentiment has actually been falling since February’s election. The index is now at its lowest level since August 2011. Other data this week included the wage price index which was largely unchanged from the previous month, and Chinese manufacturing PMI which showed decent improvement. Next week we get data on construction work done, new home sales, and private capital expenditure.

New Zealand
There hasn’t been a lot of data from New Zealand this week.  Monday’s stronger than expected producer prices data provided some temporary support for the currency, which has otherwise been under pressure for much of the week. Another decline in dairy prices at Fonterra’s Global Dairy Trade Auction, this time by -1.8%, certainly helped push the NZD lower. We have now seen seven straight declines in prices since the beginning of February which combined show dairy prices have fallen 25%. This is significant for the economy as dairy makes up around 30% of exports. Immigration has been in the news a lot recently and the latest figures for April showed a net gain of +4080 people. This is the strongest month for migration since 2003 and it certainly won’t help ease pressure on the housing market. Next week we have the trade balance, business confidence, and building consents data to digest.

United States
There hasn’t been a lot in the way of hard data from the United States this week, however we have seen plenty of comments from Fed officials. The Fed’s Dudley said he sees a relatively slow pace of tightening when rates rise and that long term rates are likely to be lower than historical norms. This is consistent with a recent report of comments made by previous Fed Chairman Bernanke at a private dinner. He suggested to his dinner guests that interest rates won’t get back to what we might have considered normal levels in his lifetime. The Fed’s Plosser on the other hand is a little more optimistic suggesting the Fed needs to raise rates sooner rather than later. He believes the economy is on a firm footing and sub-6% unemployment by the end of the year is plausible. In the early hours of this morning we saw the release of minutes from the Fed last meeting. The bank believes there is very little risk to inflation by continuing to try and fuel job growth. Most members only saw inflation at 2.0% in the next few years. The bank has started discussions about how to go about exiting their extraordinarily easy monetary policy, although they stressed this is only prudent planning and not a sign that rate hike would come any time soon. Tonight we get weekly unemployment claims, manufacturing PMI, and existing home sales data. The highlights from next week’s economic calendar include durable goods orders, consumer confidence, pending home sales, and GDP.

It has been a quiet week so far for economic data out of Europe. We have seen German producer prices and the Eurozone current account figures which both came in a touch under expectations. Consumer confidence on the other hand came in a touch better than forecast at -0.7, which is also an improvement on the previous reading of -9. These releases have had little impact on the level of the Euro which continues to trade heavily on the back of expectation for further easing by the ECB next month. Thanks to President Draghi’s comments at the last meeting, forecasters are now universally expecting action at the next meeting, there is however no real consensus on exactly what that action will include. Tonight we get manufacturing and service PMI data and tomorrow see the German business climate index set for release. Next week is mostly second tier data with the highlights being German consumer climate, unemployment and retail sales, along with French consumer spending and Eurozone money supply.

United Kingdom
The UK Pound has made good gains this week helped by solid data and a hint the central bank could raise rates soon rather than later. Inflation data on Tuesday printed a touch stronger than expected at +1.8%, which is also up on the previous months reading of +1.6%. Then last night we saw the strongest annual gain in retail sales in 10 years. This data was helped by the Easter trading period, but it is none the less a very positive result. April’s month on month gain was +1.3% vs expectation of only +0.5%. The GBP liked this data as well as the minutes that were released from the previous Bank of England rate meeting. Recent comments from Governor Carney have downplayed the prospect of rate hikes earlier than mid next year, but it seems some of the Monetary Policy Committee (MPC) members aren't so sure. For some members the decision whether to hike was becoming more balanced and the minutes said “it could be argued that the more gradual the intended rise in Bank Rate, the earlier it might be necessary to start tightening policy.” It seems Carney’s dream run with no dissenters voting against him on the MPC might be close to coming to an end. Next week looks to be a little quieter with only mortgage approvals, the house price index, and CBI realized sales set for release.

We have had a couple of releases from Japan this week that suggest the economy is improving. The first was core machinery orders on Monday that printed at +19.1% vs expectations of only +6.1%. The second was the trade balance and although it came in below expectation at -0.84T, this is a large improvement over the previous -1.63T result. A big improvement was expected as demand for imports of consumer goods had been dampened in the wake of the sales tax increase. But more importantly exports were reported to have risen 5.1% and this is good news for Japanese industry. The Bank of Japan (BOJ) held their monetary policy meeting on Wednesday and as widely expected they voted unanimously to keep policy steady. They expect the economy to continue to recover modestly. BOJ Governor Kuroda later said QE has pushed up demand and that the positive cycle in the economy is working. Next week along with the BOJ minutes we get retail sales, household spending, inflation, and industrial production data.

The only data released so far this week from Canada has been wholesale sales which disappointed printing at -0.4% vs +0.4% expected. This follows the two previous months of gains in the data. Of more interest however, will be retail sales due out tonight, and inflation due Friday. Next week is another light one for data, with only the current account and GDP of any note.