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Economies of Note - 23rd October

Written by Edited by Ian Dobbs on October 23rd, 2015.      0 comments

The AUD saw some support early in the week from the release of the RBA minutes which struck a more upbeat tone than was expected. The RBA noted a pick-up in non-mining investment and the prospect of declining unemployment in the months ahead. The NAB Business Confidence survey released yesterday affirmed an improvement in confidence in the non-mining economy (Capex +20 from +18 prior). China's Q3 GDP data released on Monday at 6.9% y/y (6.8% exp.) alleviated concerns of a much larger decline from Australia’s key export partner. However, the AUD was on the back-foot mid-week as sharp falls in the Chinese equity bourses impacted risk sentiment. Sentiment was also impacted after CBA followed Westpac’s lead (from last week) by hiking rates on floating home loans (+15 bps), and this was followed by NAB this morning. The moves by CBA, Westpac and NAB have increased calls for an RBA rate cut at the November meeting with the market now pricing a ~28% chance of a cut. Australian Q3 Inflation data on Tuesday and Wednesday’s FOMC meeting next week will no doubt heavily influence the RBA’s thinking. Friday see’s the release of September Private Sector Credit data.

New Zealand
The latest GDT dairy auction release on Tuesday night saw the kiwi come under pressure early in the week after prices fell 3.1% to an average of USD 2,733 per MT.  This result came on the back of four previous strong results. The first negative result since early August and concerns over the impact on the rural sector of a dry El-Nino summer saw some players marginally increase their expectations for a rate cut at next week’s RBNZ monetary policy meeting. Last Friday’s Q3 inflation data also shows that inflationary pressures remain well contained, near 16-year lows presently. The later part of the week has been dominated by the risk aversion theme (and easing commodity prices) after China’s Shanghai Composite Index fell 3.0% on Wednesday, albeit the NZD remained relatively strong. Next week will be dominated by the RBNZ cash rate announcement on Thursday. September trade data on Tuesday and the ANZ Business confidence survey on Friday will also be of interest.

United States
This week saw the release of a variety of U.S. second tier data, most of which was dollar supportive. This included better than expected September Existing Home Sales (+4.7%, vs. 1.4% exp.) and weekly jobless claims data released overnight (259k vs. 265 k exp.). September Housing Starts data released on Tuesday rose 6.5% m/m to an annualised pace of 1206k (vs. 1142k exp.), although the building permits data showed a 5.0% decline. The data overall reinforces the positive trend seen in the housing market brought about by the improving labour market conditions and low borrowing costs. These factors no doubt also influenced the rising confidence shown in the NAHB survey of the U.S. homebuilder market released on Monday (Oct. Housing market index +64 from +61). Positive sentiment was also seen in last Friday’s release of the University of Michigan’s consumer sentiment index which rose to 92.1 in Oct. (89.0 exp.). Next week will be dominated by the FOMC meeting on Wednesday where concern over Asian and emerging market growth, along with a soft inflation outlook for the U.S economy should see the Fed remain on hold.

United Kingdom
U.K. September Retail Sales data released overnight dominated the calendar this week. Headline sales rose 1.9% m/m taking annual growth to 6.5%, these both far exceeded the 0.3% and 4.8% expectations. Improving labour market conditions and solid growth in real household earnings continue to provide a solid platform for the retail sector. The Bank of England (BoE) report on EU membership showed support from the BoE Governor Mark Carney who highlighted its economic benefits, although called for reform to ensure the union still works in Britain’s interest in the future. Pound gains have moderated in trade overnight on the back of the sharp decline in the Euro following the ECB meeting. U.K. Gross Domestic Product data on Tuesday and the U.S. FOMC meeting the following day will by the primary drivers of the GBP next week.

The EUR fell sharply in trade overnight following the ECB meeting where President Draghi flagged the prospect of further easing as early as the coming December policy meeting. Concerns over emerging market growth prospects and weak oil prices mean risks to the Euro area’s growth and inflation dynamics are skewed to the downside currently. Euro-zone Inflation data released late last week showed a Eurozone in deflationary mode (-0.1% y/y in September). Draghi added overnight that the ECB was considering the use of “all instruments” within its mandate to support activity and lift inflation, a notable shift from last month’s meeting where the Governing Council failed to discuss any adjustment to the composition of the Asset Purchase Programme. Later today sees the release of Eurozone Markit PMI data, whilst German data dominates next week led by German IFO business confidence on Monday, along with German unemployment and inflation data on Thursday.

Light data flow in Japan this week meant the focus for the Yen again centred on next Friday’s BOJ monetary policy meeting and the prospect of the announcement of an expanded stimulus program. September trade data released during the week raised calls for more BOJ stimulus after the data showed exports rising just 0.6% in the year to September, against expectations of a 3.4% gain (3.1% prior). Export growth was the slowest seen since August last year. Mid-week Yen gains brought about on safe-haven buying have been relinquished in trade overnight as the dollar surged. The ECB’s willingness to add extra stimulus has again reassigned focus to the prospects of further easing at the BOJ meeting next week. Other data releases out of Japan next week include Retail Trade (Wednesday), Industrial Production (Thursday), and inflation data on Friday.

Despite a change in government in Canada this week (Justin Trudeau’s Liberals ousted the incumbent PM Harper), CAD focus was dominated by commodity price movements (WTI oil -4.7% this week) and a move by the Band of Canada (BoC) to downgrade its 2016 growth forecasts by 0.3 ppts to 2.0%. Weaker global growth and the ongoing weakness in oil prices were behind the downgrades. The Bank now expects investment in the energy sector to decline by 20% next year as firms reduce their investment spend. The BoC left its benchmark interest rate at 0.5% as expected. Canadian Inflation data tonight and next week’s Fed interest rate decision on Wednesday will dominate focus over the coming week. Canadian GDP data on Friday and oil market developments will also be key drivers.