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Economies of Note - 26th August

Written by Ian Dobbs on August 26th, 2016.      0 comments

The Australian dollar has had a very quiet week against the greenback this week so far ahead of this weekend’s Jackson Hole Economic Symposium. The only data of note has been construction work numbers for the second quarter which showed the value of total construction completed falling by 3.7% to $47.4 billion, the lowest level since June 2011. The poor result comes as construction has declined 10.6% this year amid the on-going decline in major engineering work which had previously benefitted from large LNG and mining projects under construction. The decline in engineering work of 9% in the quarter saw the year-to-date decline in engineering reach 25%. Expect a quiet day again today as the market awaits the Fed Chair Janet Yellen’s speech tomorrow morning (NZ time). Economic indicators of interest next week in Australia will start with July Building Approvals data on Tuesday.

New Zealand
It has been a quiet week for domestic leads in NZ which has led to the kiwi trading a tight range around 73c versus the greenback so far. Events of interest included a speech from RBNZ Governor Wheeler on Tuesday which helped lift the kiwi, in part on the back of a lack of comments over the current elevated level of the exchange rate. Trade data for July came in slightly weaker than expectations on the back of a miss in exports which shrunk (in part) on falling beef and lamb receipts. Other news of interest included a lift in Fonterra’s payout forecast which if realised could inject up to $800 million into the economy. The new forecast payout of $4.75/KG still sits well adrift of the minimum required to see most farmers in the sector breakeven however. Expect a quiet day and attention to remain squarely centred on Fed Chair Yellen’s speech at Jackson Hole early Saturday morning (NZ time).

United States
It has been a mixed week for the USD so far ahead of this weekend’s Jackson Hole meeting of economic and central bank leaders. Data leads started with numbers on new home sales which rose to their strongest pace since October 2007. The data easily outstripped the consensus and included underlying details which were supportive of construction activity ahead. Other data on Tuesday included a soft low impact Richmond Fed manufacturing index print and drop in the latest manufacturing PMI indicator. Existing home sales which declined 3.2% in July was far greater than expected whilst house prices which climbed just 0.2% m/m in June matched that from the month prior. Data released in recent hours included durable goods orders for July and jobless claims data which both beat expectations. The durable goods data indicated that a recovery (whilst modest) in business investment may be underway, if true this would come as a relief given the recent weakness in investment which has been a key contributor to the soft Q2 GDP growth. Look to the second read on Q2 GDP tonight for initial direction and then to Fed Chair Yellen's speech shortly after for any indications on US rates, especially in light of comments from other Fed members this week who have pointed to the strengthening case for a further rate increase.

United Kingdom
A subdued local news calendar ahead of this weekends’ US Jackson Hole meeting and extended GBP short positioning by speculators has seen the pound remain on a solid footing against the greenback this week. Economic leads started with the CBI Industrial Trends Orders survey of 505 firms which showed export orders rising to two year highs, no doubt helped by the large depreciation of the sterling this year, and especially since June’s Brexit vote. The above consensus read was helped by chemical manufacturers who contributed to just over half of the improvement in export orders. The latest BBA mortgage approvals data showed little in the way of Brexit worries among those taking out mortgages, although the July approvals at 37,662 was down slightly on the month prior. Data from the CBI Distributive Trades Survey showed retail sales volume growing in the year to August following last month’s fall, in part helped by the summer weather. The recent fall in the value of the sterling and rising price of imported goods looks likely to suppress spending on nonessential goods going forward however. Look for attention to move to today’s second read on UK Q2 GDP and later speech from Fed Chair Yellen out of Jackson Hole.

Like many other currencies trade in the Euro has been lacklustre in the lead up to this weekend’s meeting of key economic leaders at Jackson Hole. Data started with PMI numbers on Tuesday which saw the Services indicator’s stay firm across the key member countries and EU as confidence remained elevated. The manufacturing PMIs eased slightly across the euro-zone and in the key member countries of France and Germany. The euro-zone number was the lowest reading since May and came as new orders to factories grew at the slowest rate in 1 and ½ years. The final German GDP delivered on Wednesday created little interest after it printed in line with expectations by growing 0.4% in the three months to June. The data was helped by strong exports and government spending although sits well under the 0.7 percent expansion registered at the start of this year. The German IFO business confidence indicator released overnight posted an unexpected decline after it fell in August by the largest amount in four years. Expect attention to close the week on events and headlines out of Jackson Hole in the US starting with Fed Chair Yellen’s speech overnight (NZ time).

Interest in the Yen like the other major currencies covered has been lacking in trade this week ahead of the weekend’s meeting of economic leaders and central bankers in Jackson Hole. Data from the manufacturing sector showed output rising for the first time in six months according to the Markit/Nikkei flash Purchasing Managers Index (PMI), although the 49.6 reading remains below the 50 threshold that marks a move from contraction into expansion territory. New orders and export orders which declined at a significant rate marred the data as manufacturers cut goods prices at the fastest rate since October 2012 in a move aimed at attracting new business. Inflation data released this morning which came in moderately weaker than expected again confirmed the deflationary environment across Japan and failure of the Abenomics economic plan and BoJ easing which has so far failed to boost inflation levels.

Like most of the currencies covered it has been a quiet week for the Canadian dollar ahead of this weekend’s Jackson Hole Economic Symposium. Oil prices have been relatively contained on the week so far although are below opening levels as doubts over the ability of leading OPEC producers to agree a production freeze or cut at next month’s meeting in Algeria remain high. Economic data from Canada this week has again been sparse. Wholesale sales rose for the third straight month in June, beating market expectations via strength in the auto industry. Canadian corporate profits for Q2 dropped 3.4% from the quarter prior to the lowest levels since 2010. Behind the decline was the $3.2 billion decline in profits for insurance carriers in the financial sector which came largely as a result of the damage incurred by the Alberta wildfires earlier in the year. Focus today will be on the speech by Fed Chair Yellen in Jackson Hole where investors will watch for any signalling on US rates and its impact on the USD and $USD based commodity pricing.