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Economies of note - 23rd August

Written by Ian Dobbs on August 23rd, 2013.      0 comments

2:15pm (NZT)
There has been little out to materially change the current outlook for the Australian economy this week. The minutes from the RBA monetary policy meeting showed the RBA has maintained its easing bias, albeit to a lesser extent. A resurgent USD saw the Australian dollar lose significant ground and this kept the currency on the back foot for most of the week. We did get some positive news out of China, when a survey on the manufacturing sector came in substantially stronger than expected. This was a solid result as the strength was due to an increase in domestic demand. The data was compiled by HSBC, as opposed the Chinese authorities, and therefore the usual concerns over the validity of the results don’t apply. There is the central bankers symposium at Jackson Hole (USA) this weekend which will be closely watched. Then next week, we only have data on construction, home sales, private sector credit, and private sector expenditure to digest.

New Zealand
The biggest event for the New Zealand economy this week was the announcement from Reserve Bank (RBNZ) Governor Graham Wheeler on loan-to-value ratios (LVRs) for the banking sector. The 10% threshold for high loan-to-value loans was a little lower than expected and help the currency lose ground across the board this week. The use of macro-prudential tools like the LVRs the RBNZ have implemented, reduce the chance of a rate hike to cool the housing market and therefore are a negative influence on the New Zealand dollar. The currency was already under pressure from a resurgent USD and the net result is a loss of over 300 points to the USD in four days. One positive on the week came from the Fonterra run global dairy trade auction the saw a 2.3% increase in prices. This has erased the declines seen at the last auction after the contamination debacle. Next week we have trade balance, business confidence, and building consents to focus on.
United States
Data out of the United States this week has been broadly supportive of the current outlook. Existing home sales were strong while weekly unemployment claims came in a touch worse than expected as did the manufacturing index. Over all the data has had little impact on current expectations. The key event of the week was the release of the minutes from the last Fed monetary policy meeting. They showed there is still a range of view within the Fed committee, however all members are broadly comfortable with tapering QE later this year. There was something for everyone within the minutes and the market struggled to get a firm direction from them. But after a day to digest it all it seems the markets view is little changed and expectation for the Fed to wind back QE by $15 billion at the September meeting is well priced in. Long term interest rates continue to move higher and the USD has regained most of the ground it lost over the last couple of weeks. This weekend is the central bankers symposium at Jackson Hole in the US. Traditionally this event has given insight  into the Fed’s thinking and is closely watched. Next week there is a full economic calendar with durable goods orders, consumer confidence, and GDP the highlights.

The Euro has benefited this week from better overall readings on the manufacturing and services sectors. Both index’s came in above expectation for the Euro-area as a whole and both were above the level that signals expansion in the sector. It wasn’t all rosy though as the country specific data showed weaker readings in France which stood out somewhat. As you would expect the German data was the strongest with both sectors performing well. We also got figures on Euro-zone construction output that came in substantially stronger than expected. The German finance minister was quoted as saying that Greece will need another bailout. Although this wouldn’t surprise anyone who’s been watching the performance of the Greek economy, it was a shock to hear it from a German minister in the lead up to their elections. It was quickly denied / countered by a number of officials. The German people are tired of writing checks to support a country that has failed to collect a total of $60 billion in tax from its own people so far. We will no doubt get confirmation of the new bailout at some point after the German elections on 22nd September. There is a raft of German data out next week along with Euro-zone inflation and unemployment figures to focus on.

United Kingdom
The only data points of note so far this week from the United Kingdom have been public sector net borrowing and industrial new orders. The borrowing figures were disappointing and raise doubts about the government's ability to tackle the black hole in Britain's public finances. But on the other hand a survey of industrial new order expectations by the Confederation of British Industries (CBI) showed marked improvement and came in at the best level since August 2011. It certainly seems British industry, and in particular manufacturing, is building momentum which is a real positive for the outlook going forward. We get more data tonight, the most important of which will be the second reading of GDP. There has been plenty of talk that it could get revised higher in line with the recent better data. Next week we get house prices data, CBI realized sales, and consumer confidence.

It has been a relatively quiet week for Japanese economic data, although we have had comments from Bank of Japan (BOJ) Governor Kuroda. He was quoted as saying he wouldn’t hesitate to ease if the Japanese economy started slowing. This has been taken as a signal that should the proposed sales tax increase have a negative effect on the economy, the BOJ will act. Debate around this tax increases proposed for 2014 can be expected to drag on for some time. Yesterday we also go the results of the monthly Reuters Tankan survey. This survey covers both the manufacturing and service sectors and is designed to assess business conditions in Japan. The results showed the manufacturing sector is the most optimistic it has been in three years, while the service sector gauge is at its highest level since April 2007. Next week there is plenty to digest with retail sales, household spending, inflation, and industrial production all set for release.

The Canadian dollar has come under some pressure this week as data so far has failed to live up to expectation. We have seen much worse than expected figures for wholesale sales and retail sales. Both of these come after poor manufacturing sales released at the end of last week. The impact has been somewhat limited by the fact that the retail sales are partially reversing large gains seen last month. These figures were also affected by the flooding in Alberta and some broad strike action in Quebec. Tonight we get inflation data while next week sees current account and GDP data set for release.