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Economies of Note - 22th July

Written by Ian Dobbs on July 22nd, 2016.      0 comments

It has been a relatively quiet week in Australia that saw attention focus on Tuesday’s release of the July RBA minutes. The minutes noted an Australian economy which is slowing down, a mixed housing market and a weaker jobs market as the RBA expressed its desire to see the Australian dollar lower. The bank said it is closely watching economic data on inflation, housing and employment and that these indicators over the next month would allow the board to refine its assessment on the outlook for growth and inflation and make any adjustments to the stance on policy that it deemed appropriate. The minutes make next Wednesday’s Q2 inflation data particularly important to the August RBA meeting decision with market expectations now pricing in  ~65% chance of a cut to a new low of 1.5%. The only other event of interest this week was the NAB business confidence indicator for the second quarter which halved from the quarter prior in a sign that the economy was continuing to lose momentum after a solid start to the year.
New Zealand
It has been a very busy week in New Zealand which saw the RBNZ in focus as it firstly moved to take measures to curb lending into NZ’s overheated property market by further tightening restrictions on bank lending to residential property buyers. The bank then took aim at the overvalued NZD later in the week as the Governor warned on Thursday that the dollar “needed” to be weaker and that it would probably achieve this through lower interest rates. Tasked with controlling inflation the RBNZ noted that the NZD was holding down tradable goods inflation and that the currency markets were making it difficult to meet its inflation objective. The combined news sent the NZD tumbling during the week and saw the market move to fully pricing in a rate cut at the August 11th meeting. Further cuts look likely as many banking players moved their terminal rate to just 1.5%. Inflation had already been in focus prior to the RBNZ statement as the Q2 release on Monday rose by less than both the markets’ and the Reserve Bank’s expectations. Falling domestic airfares were seen as a key contributor in the soft print whilst upside pressure was provided by a 5.3% lift in the price of petrol. Other news included the latest GDT dairy auction which saw the overall pricing remain flat from two weeks prior. Look for a quieter week next week with the first data piece of note being the June trade numbers on Tuesday.
United States
Gains for the USD started towards the middle of the week on the back of strong data from the housing sector which saw both the latest starts and building permits lift markedly from their prior reads.  The housing market recovery remains in sound shape supported by low interest rates, rising real disposable income and positive employment growth. Data on existing home sales were also strong as they rose to their highest level since February 2007. Weekly initial jobless claims eased marginally against expectations of a rise although remain near their 43 year low touched in April. Claims have been below the 300k healthy labour market threshold now for 72 straight weeks in what is the longest stretch since 1973. The Philly Fed manufacturing index disappointed as it fell to -2.9 from 4.7 prior. Further data is awaited from the manufacturing sector later today with the release of the latest manufacturing PMI read, although for now a quiet end to the week looks most likely.

United Kingdom
It has been a busy week in the UK as key indicators on inflation, employment and the retail sector came to market. The week started with numbers on the housing sector which showed declines although created little stir. The inflation numbers for June were stronger than expectations at both the core and headline level as prices for petrol and airline tickets moved higher. Data from the labour market was strong. The data showed the unemployment rate falling to its lowest levels since 2005 (4.9%) and the creation of 176k jobs in the three months to May, although the increase in employment was driven by self-employment which may have reflected weakness in firm hiring ahead of the Brexit vote. Data from the retail sector was weak. The numbers undershot the low consensus expectations although the market quickly unwound any losses in light of reflecting on the considerable consumer uncertainty than was evident leading into the UK’s vote on EU membership. Focus now turns to PMI numbers on the manufacturing and services sector later today.

Focus for this week in Europe was on yesterday’s ECB meeting which saw the central bank keep both its rates and asset purchase programme unchanged. This was an expected move as the market saw it as highly likely that the ECB would follow the BoE in waiting for further evidence on the impact of the UK’s EU exit vote before moving. President Draghi referred to the September meeting as giving the governing council the ability to re-evaluate all new evidence in light of the uncertainty over the actual effects that the vote will have on the Eurozone economy. Data released during the week included one of the first macro releases that covered the post-referendum economy. This showed the Eurozone consumer confidence slipping in July, although the move from -7.2 to -7.9 was a touch better than expected. Data from the ECB on bank lending showed weaker credit conditions in June whilst the July ZEW survey data showed a sharp fall in expectations for the German and Eurozone economies. Focus to finish the week will turn to PMI indicators on the manufacturing and service sectors (and composites) in Germany and across the Eurozone.

This week has been a quiet one in Japan which has been devoid of any economic local leads. The main bout of volatility occurred in overnight trade as the Yen jumped on a headline from the BOJ’s Kuroda which stated that there is “no need and no possibility for helicopter money”. Much of the move later retraced once it became known that the headline emanated from an interview conducted on June 17 and that the comments merely repeated his usual stance on the issue. The move came as speculation of such a move by the BOJ has remained elevated in recent weeks as an avenue that may be explored in order to spark Japan out of its tepid inflationary environment. Focus for today comes from the manufacturing sector although expect the numbers to create a passing interest at best. Next week will be more interesting with economic releases and the BOJ central bank meeting concentrated on Friday. Expectations are high that the central bank will finally act with fresh easing although expectations are divided on what form it will take.

There has been little to go on for the Canadian dollar in trade so far this week as the market awaits the June inflation and May retail data, set for release later today. The lack of data has seen the oil market again dominate sentiment which has placed the CAD under some pressure in recent trade as oil moved lower overnight on the back of persistent concerns over the supply glut in crude and refined petroleum products. Canadian wholesale sales released yesterday climbed at their fastest rate in more than a year as the number easily beat expectations on the back of strong demand for automobiles and food. The data attracted little market attention however despite wholesalers accounting for the largest share of the country’s services sector (and 2/3s of overall economic output). Next week is again looking quiet for the majority of the week until the May GDP report and data on raw materials pricing due for release on Friday.