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Economies of Note - 23th October

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

The two key releases from Australia this week were the RBA minutes and inflation data. Both releases printed in line with market expectations and therefore only had muted impact on the currency. The RBA believe it will probably be some time before the unemployment rate declines consistently and as such the most prudent course of action is likely to be a period of stability in interest rates. They said, interest rates need to stay low, especially with the high Australian dollar offering less assistance to the economy that would normally be the case. The central bank also stressed the importance of maintaining rigorous standards on loans to property investors. Inflation data hit the wires yesterday and there was some talk ahead of the release that it could surprise on the downside. In the end the headline figure remained unchanged at 0.5% for the quarter. This was a touch above the expectation of 0.4%. However, the trimmed mean figure (which the RBA pays most attention to) fell from 0.8% to 0.4%. This was below market forecasts for an outcome of 0.6%. Overall there was nothing in the data to alter the current outlook for the central bank to remain on hold for the foreseeable future. Next week we get the Australian Treasury’s mid-year economic and fiscal outlook, along with import prices and producer prices.

New Zealand
New Zealand has seen two economic releases of note this week. The first was migration data which surged to a new high in September with a net 6,125 migrants on the month. This means in the year to September NZ saw a net gain of 45,414 migrants. With many of those people looking to settle in Auckland this just adds further pressure to the housing market. In the past few hours we have also seen the latest reading of inflation. The market was expecting a pick up to 0.5% for the quarter from the prior reading of 0.3%. The actual result however, was unchanged at 0.3% with the yearly figure a very tame 1.0%. Housing related prices are responsible for a large part of the rise in inflation with price pressure in other categories largely subdued. This sort of data will only encourage the RBNZ to remain on hold well into next year. It may well be late 2015 before rates are hiked again, and a lot can happen between now and then. The New Zealand dollar was immediately sold on the back of this data and should remain subdued with expectations of rate hikes getting pushed further out. Next week we have business confidence, building permits and the RBNZ rate statement to digest.

United States
It has been a quiet week so far from the US with existing home sales and inflation the only data of note. Existing home sales printed at the highest level this year coming at 5.17m against an expectation of 5.10m. Headline Inflation was also a touch stronger than forecast coming in at 0.1% month on month, and 1.7% year on year. Stripping out the volatile components of food and energy saw the core inflation reading also print at 0.1%, this was however a touch weaker than the expected reading of 0.2%. There was little impact from the data on the value of the USD. Tonight we get weekly unemployment claims, manufacturing PMI and new home sales. Next week the focus will turn to durable goods orders, consumer confidence, the Fed rate meeting and GDP data.

United Kingdom
The focus in the United Kingdom this week was on the release of minutes from the latest Bank of England (BOE) meeting. They hit the wires last night and caused the UK Pound to come under some pressure. The minutes said for most members there was insufficient evidence of inflationary pressure to raise rates. The voting pattern remained unchanged at 7-2 to keep interest rates at the record low of 0.5%. The minutes also highlighted the risks of a slowdown as a result of economic weakness in the Euro area. Combine that with the recent decline in inflation and most forecasters in the market now expect the BOE to remain on hold until mid-next year at least. Only a few months ago expectations were we could see a hike as soon as November, but it’s now looking like they will wait until after the general election in May. Tonight we get the latest reading on retail sales. The market is expecting a decline to -0.1% from last month’s +0.4% result. This will be followed on Friday evening by GDP data which is forecast to print at a healthy +0.7% for the quarter. Next week we have mostly second tier data to digest with CBI realized sales, the Nationwide house price index and net lending to individuals the main focus.

There has been little data of note released so far this week from the Eurozone, although tonight we do get manufacturing and service PMI data to digest. There have been a number of reports this week that the European Central Bank is considering buying corporate bonds on the secondary market. The ECB has already started buying asset backed securities and a move into corporate bonds would be aimed at increasing lending to business in the hope that would support the Eurozone economy. The Euro has seen some pressure on the back of this speculation. There has also been a lot of rumour around the upcoming release of bank stress tests. These results will be released on Sunday and talk is up to 11 banks could have failed the test. However, these are likely to be smaller regional banks. Goldman Sachs this week released a note suggesting the Euro will remain under pressure on the back of outflows from residents who are starting to search for better yields abroad. Data for August shows that these flows are picking up and this could well be a key underlying driver over the medium term. Next week we have German retails sales, German IFO business climate, French consumer spending, unemployment and inflation data to digest.

The only data of note from Japan this week has been the trade balance. The trade deficit edged up in September to JPY -958.3bn despite a rebound in exports that were helped by a weaker Yen. While the weaker Yen helped inflate the value of exports which jumped 6.9%, it also boosted the cost of imports which rose 6.2%. This trade deficit is the 27th straight monthly trade shortfall and is largely the result of Japan’s energy problems. With the nation’s nuclear power plants off line since the 2011 Fukushima accident, the country has had to import energy on a massive scale to compensate. Next week we get readings from retail sales, industrial production, household spending and inflation, along with the Bank of Japan monetary policy statement.

It has been an interesting week in terms of economic releases from Canada. Early in the week wholesale sales data came in bang on expectation at +0.2%, but last night retail sales looked to miss expectations of +0.2% by a big margin when they printed at -0.3%. Looking into the detail provided some relief however, with much of the decline driven by a fall in gasoline prices. The actual volume of sales was only down by 0.1% on the month and this is not enough to materially change growth forecasts for the third quarter. The Bank of Canada held their latest rate meeting last night and although they left rates unchanged at 1.0% the market got a little excited due to the fact they dropped the reference to being ‘neutral’ in the statement. Far from signalling a change in stance however, this was more about removing forward guidance altogether as the bank believes it’s only useful as a policy tool when rates are at the “zero lower bound”. Overall the statement was balanced with the bank believing excess capacity in non-energy exports is still an issue and a reason why business investment is being delayed. The acknowledged the recent reduced outlook for global growth while suggesting the US economy is still gaining traction and this will help with Canadian exports. Next week’s economic calendar is looking very light with just the raw materials price index and GDP set for release.