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Economies of Note - 24th June

Written by Ian Dobbs on June 24th, 2016.      0 comments

This week has been another quiet one for local data points of note on the Australian economic calendar. Brexit headlines dominated trade in the currency markets over the week and sentiment which favours the UK remaining within the EU has seen the markets chase the ‘risk’ currencies in recent hours. Events in Australia this week included the RBA minutes release on Tuesday which saw the central bank fail to give any signalling on the likelihood of a further cut to the cash rate. The RBA remained relatively upbeat about growth and employment, although noted the risks of persistently low inflation. Data on Australian house prices showed property prices starting 2016 on a subdued note as the Q1 weighted average price fell 0.2% across the eight capital cities. Look for today’s UK EU referendum result to drive trade well into next week. Australian data of note during the week ahead will start with HIA new home sales on Wednesday.

New Zealand
The NZD has lurched higher in trade in the last 24 hours on the back of an anticipation that the UK will choose to remain within the EU. The move comes as the market embraces risk currencies like the NZD in the lead up to the vote, the outcome of which will be known later today. Local news of interest has been lacking this week. Numbers released on Wednesday showed that migration may have peaked during the year to May as the trend in the monthly net gain continues to ease after having reaching a peak in November last year. Migration for the year reached a record 68,420 however, and is expected to rise slightly next month before starting its decline. Credit card spending which rose 5.9% y/y showed moderation from the numbers released the month prior. Look to this afternoon’s Brexit decision for immediate influence. Data next week will start with May trade numbers on Monday.

United States
The US dollar is under pressure in current trade ahead of this afternoon’s release on the outcome of the UK EU membership. The move comes as the market anticipates a win by the ‘remain’ campaign ahead of the result. Events of note in the US this week started with a speech to the US Senate from Fed Chair Janet Yellen which offered little in the way of an indication of further clues for the path of rate normalisation. However, the markets did note her lowered change in confidence in her wording over signs of improvement in the US economy. Data released during the week included numbers on US existing home sales which rose to their highest level in nine years and initial jobless claims which fell by 18k to 259k. The positive reads were joined by the preliminary manufacturing PMI indicator for June that also beat expectations. Negative reads came from the latest Chicago Fed national activity indicator and new homes sales which fell 6% in May. Look to the outcome of today’s Brexit vote for USD direction to conclude the week.

United Kingdom
Today’s vote on the UK EU referendum has continued to grip investor sentiment this week. Growing confidence that the UK will have chosen to remain within the EU when the result is announced later today has seen the GBP reach highs against the USD not seen since December. Latest polling for the Evening Standard newspaper indicated a lead for the campaign as voting continued throughout Thursday. Expect the final results around 7 a.m. London time although up to 1/3 of the vote may be counted by around 3 a.m. This could allow for an early indication of the result if the race isn’t a tight one. Data in the UK released during the week included CBI industrial trends orders numbers which performed better than expectations and public sector net borrowing which expanded from the month prior, although neither release caused any interest. Expect significant moves this afternoon as the voting results come in, especially so if the race is a tight one. Expect a downgrade of Britain’s triple A credit rating from S&P within a short period and a G7 finance leader statement stressing the readiness to take all steps necessary to calm markets in the event of a Brexit vote

Sentiment in Europe like the UK has been gripped by today’s vote on the UK EU membership. Confidence remains high that the UK will choose to remain within the EU, although many member nations across the euro-zone are also battling their own calls for a vote on the membership issue down the track. Key data out of Europe this week started with the German investor ZEW survey which saw the current conditions index come in above expectations and the six month outlook rise markedly from the period prior. Data on euro-zone consumer confidence remained weak. Regional PMI indicators saw France again disappoint, this time across all the three manufacturing, services and composite indicators. The German PMI manufacturing indicator strengthened beyond expectations, although the less important services indicator failed to match its consensus. The strength seen in the German manufacturing PMI helped pull manufacturing conditions measured across the euro-zone further into expansionary territory. Look for the Brexit outcome today to have control over the Euro as we head into the week ahead.

External drivers have once again been the dominating theme of trade in the Yen this week.  Increasing confidence that the UK will have chosen to remain within the EU when the vote release is announced this afternoon have seen investors increase their bets on ‘risk’ currencies in lieu of ‘safe haven’ currencies like the Yen. Events locally have had little impact on proceedings over the week. The BOJ April minutes showed policymaker concern over risks posed by overseas economies to the local economy and local pricing. Trade data released on Monday showed a small decline in the surplus from the month prior as exports to key trading partners slumped. The latest indicator on the manufacturing sector showed a further contraction in conditions in June from those seen last month. Data next week starts with retail sales numbers on Wednesday- although expect fortunes for the Yen to be tied to the outcome of today’s UK referendum result.

The data calendar in Canada this week has been dominated by Wednesday’s retail sale release. The 0.9% lift from March was a new record and came largely thanks to higher sales at gasoline stations. The increase was the third in four months and matched analyst expectations although at the core level the data was seen outstripping the consensus. Data on wholesale sales rebounded from the month prior although failed to lift by the degree expected. News from the energy markets included data on US oil supplies which fell by less than that expected last week, although oil prices have remained well supported in recent trade in the anticipation of the UK voting to remain within the EU. Look for CAD sentiment to be driven by this outcome which is expected to be delivered late this afternoon (NZ time).