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Economies of Note - 23rd December

Written by Ian Dobbs on December 23rd, 2016.      0 comments

It has been a quiet week in Australia this week which has meant the recent trend of weakness in the local currency against the greenback has continued to prevail. Local focus was on Tuesday’s RBA minutes which saw the Reserve Bank indicate that it was happy with the current interest rate setting of 1.5%. The decision at the meeting earlier in the month to leave rates on hold was expected and was the fourth in a row that saw rates remain unchanged. The minutes revealed reservations from the board over the effect of low interest rates on asset prices and household borrowing. Concerns over Australia’s AAA rating circulated earlier in the week although the budget deficit was insufficient to cause any immediate move from the three key ratings agencies. Weakness in iron ore prices during the week also weighed on sentiment. Expect a quiet finish to 2016 with just private sector credit figures due on New Year’s Eve, although indicators from offshore will continue to be watched with a keen interest.

New Zealand
The New Zealand dollar has continued to slide lower against the greenback in trade heading into the Christmas break. The week started with Q4 Westpac consumer sentiment which rose solidly from the quarter prior. October building consents and ANZ consumer confidence for December both registered gains from the month prior. Trade data for last month showed a larger than expected deficit on the back of falling beef and lamb exports. Migration data posted another broken record as 70,400 new residents arrived in the November year, again higher than expectations. The latest GDT dairy auction registered a minor (0.5%) overall decline although the outlook for 2017 looks sound as production levels support pricing in the months ahead. The main release of the week was yesterday’s Q3 GDP data which came in higher than expectations at 1.1%, although revisions to previous data saw the 3.5% annual result slightly miss the consensus forecast. Growth in the quarter was broad based as 13 of the 16 surveyed industries grew during the period. Local news will be sparse over the holiday period with just a further GDT dairy auction set for release in the first week of the NY.

United States
This week has been one about consolidation for the US dollar after the recent strong gains off late. Releases have included the Markit Composite PMI which eased to 53.7 from 54.9 and existing home sales which rose 0.7% in November. The lift was against expectations of a 1% decline and was the third consecutive monthly rise. Other data included a 21k rise in initial weekly jobless claims (worse than expectations) and a fall in November durable goods orders which closely matched that expected. Personal income was flat for the same month (against expectations of a small lift) and the final read of Q3 GDP was raised from an annual rate of 3.2% to 3.5%. The pace of growth in the third quarter was the fastest in two years. Comments from Fed Chair Yellen included upbeat remarks on the US labour market. The week will conclude with Michigan consumer sentiment and new home sales numbers today. Data over the holiday period will be dominated by December Nonfarm payrolls on Friday January 6th.

United Kingdom
This week has been quiet in the UK so far as much of the focus has been reserved for today’s third quarter GDP data. Key news has included a ruling from the EU courts which ruled that member states, rather than just EU institutions must approve a trade deal with Singapore. This ruling means EU national parliaments could attempt to spoil any EU-UK trade deal during the Brexit process as they attempt to get additional concessions. Deals would also run the risk of getting blocked by national or regional parliaments much in the same way as was seen during the recent Canadian-EU CETA agreement. Data released over the week has included a stronger than expected CBI distributive trades survey and a marginal improvement (to -7) in the Gfk consumer confidence indicator, although neither release created much market interest. Data over the holiday period includes BBA mortgage approvals on Wednesday next week whilst 2017 starts with manufacturing PMI numbers on the third of January.

The final full week of the year has been another quiet one in Europe. The German IFO showed business morale lifting to its highest level since February 2014 as the business climate index rose to 111 from 110.4, and result was marginally higher than expected. Current conditions increased sharply to its highest level in over 4 years. Other data included German producer prices which lifted by more than expected in November and EU consumer confidence which increased to -5.1, the strongest reading since April 2015. EU court rulings have been in the news and included rulings on Spanish bank reimbursements to borrowers who overpaid on mortgages and a ruling that member states rather than just EU institutions need approve a trade deal with Singapore. The latter ruling will greatly increase the complexity and time taken to negotiate trade deals moving forward (including with the UK during the Brexit process). Look for numbers to kick off in 2017 with PMI indicators on January 2nd.

Focus during the Christmas lead-up week was on Tuesday’s Bank of Japan (BoJ) meeting which saw the BoJ leave policy on hold (as expected) and move to counter any suggestions that they may be considering tapering of the huge asset purchase programme. The bank suggested that the recent JPY weakness and overseas demand will heighten prospects for a solid economic recovery. The announcement had little effect on the markets during what has been a quiet week for volatility in the USDJPY. The only other data of any interest was the November trade numbers which delivered a smaller than expected surplus for the month. Falling imports which outpaced the decline in exports helped Japan post its third straight monthly surplus, although the size of the year-on-year fall in imports was smaller than expected. Data next year starts on January 3rd with manufacturing and services PMI indicators. Inflation data which is due on Boxing day. Expect any volatility during the holiday break to come mainly via risk and US dollar sentiment.

Dominating interest so far this week in Canada was yesterday’s inflation data. The annual inflation rate was seen cooling last month to 1.2% from 1.5% in October which suggests that the BoC will continue to maintain a cautious stance that keeps the possibility alive of further rate cuts in 2017. New measures of core inflation were also below the bank’s 2% target. Retail numbers for October rose by more than expected as consumers paid higher prices for gasoline and increased their purchases at general stores. Wholesale sales for October registered a larger than expected gain and included strong gains in the building material and supplies subsector. Focus to conclude the week will be on today’s monthly GDP numbers. Data in the New Year kicks off with the RBC Manufacturing PMI indicator on the 3rd January.