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Economies of Note - 23th April

Written by Ian Dobbs on April 23rd, 2014.      0 comments

There have only been a couple of second tier releases, in the form of business confidence and the leading index, since last week’s RBA minutes and neither of them had much in the way of market impact. The focus was always going to be on today’s inflation data with the market expecting a 0.8% result for the March quarter. The two previous quarter’s results had come in stronger than expected and there was some expectation this would happen again. In the end however the 0.6% result has only served to cemented the RBA’s current neutral stance. The Australian dollar immediately came under pressure in the wake of the release. This data was quickly followed by Chinese manufacturing PMI which came in on expectation at 48.3. This is however, below the 50 level which denotes contraction or expansion in the industry, and it marks the fourth sub 50 reading in a row.

New Zealand
There has been very little in the way of key data released from New Zealand since last week’s softer than expected inflation numbers. We did get the consumer confidence index which increased 1.1% to a level of 133.5. This serves to confirm the current positive outlook for the economy and it will have no impact on the expectation for a 0.25% hike in the cash rate from the Reserve Bank of New Zealand (RBNZ) at tomorrow’s meeting. The focus will be on the wording of the RBNZ’s statement and whether the lower than expected level of inflation will impact their projected tightening cycle.

United States
Recent data from the United States has been largely positive with a number of results coming in above expectation. However, this has had little impact on the USD which remains very subdued overall. Toward the end of last week we saw better than forecast results for industrial production, capacity utilization, unemployment claims, and the Philadelphia Fed manufacturing index. The low level of unemployment claims (around 300k), which has been maintained for a couple of weeks now, is consistent with solid jobs growth and a potentially strong reading for next month’s key non-farm payrolls data. Last night we got a strong reading from the Richmond manufacturing index and existing home sales also came in better than expected. We get manufacturing PMI tonight and the risks must be skewed toward a better than forecast result. This will be followed by new home sales and then durable goods orders tomorrow.

Data out of Europe last week is best described as underwhelming. It will have done nothing to support the ECB’s view of a gradual pickup in inflation over the coming months. The current low level of just 0.5% was confirmed in the revised numbers released on Wednesday, and Thursday’s German PPI of -0.3% suggest there is little in the way of pipeline inflation pressure in the system. Eurozone consumer confidence improved marginally, although not by enough to impact the market at all. Tonight we get manufacturing and service sector PMI’s from both France and Germany which will be closely watched. Then tomorrow we also get the German IFO business climate index. ECB officials continue to threaten action in the hope of ‘jaw boning’ the currency down. The latest was the ECB’s Linde who last night said if inflation doesn’t rise in April/May, the ECB may be open to action. He added that the end of Euro appreciation would aid the whole European recovery.

United Kingdom
We have seen no data of significance from the UK since last Wednesday’s better than expected employment result. The currency has maintained a firm footing in what can only be described as subdued trading over the Easter period. The focus for this week comes in the form of tonight’s Bank of England (BOE) minutes, although we can expect no surprises with the bank’s rate setting committee uniformly comfortable with current policy settings. Retail sales data out toward the end of the week offers additional focus with the market expecting a small decline of -0.4% after last month’s strong +1.7% reading.

Late last week from Japan we saw data on consumer confidence and tertiary industry activity. Both results came in below expectation, although neither had a big impact on the Yen. On Monday the latest trade balance figures were released and once again they made disturbing reading. The balance for March was -1446.3bn Yen, which is a massive deterioration from the previous figure. Continued energy imports are a big factor, but a spike in imports (+18.1%) ahead of the sales tax increase also contributed to March’s poor result. This data did weigh on the Yen which lost ground across the board. The only other data of note this week comes in the form of inflation set for release on Friday.

Last week saw stronger than expected results for Canadian manufacturing sales and inflation. These did little for currency however that came under renewed pressure after the Bank of Canada rate decision. Governor Poloz’s comment that the bank hadn’t shut the door on further rate cuts put the CAD on the back foot and it has maintained a soft tone since. This week’s focus comes from retail sales data which is set for release tonight.