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Economies of Note - 26th February

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

1:45pm(NZT)
Australia
The AUD is finishing the week near its highs in what has been a similar tone of trade to the NZD. The offshore themes of risk and commodity price sentiment have again been the key drivers over the week. Consolidation in the equity and commodity markets have allowed the AUD to stay well within recent ranges over the course of the week. Data considerations were again secondary during the week, although included a fall in the Q4 construction work numbers and decline in the Q4 wage price index. The Q4 Capex report was stronger than expected, although the forward looking capex intention series weakened. Other stories of interest included an article in the Sydney Morning Herald which highlighted the declining fortunes of property investors in more remote Australian mining locations. Another in the Australian Financial review spoke of the lax disclosure by mortgage brokers in home loan application documents and poor bank due diligence in the property market, issues which featured pre-eminently in the U.S. property market prior to the GFC. It is a busier week for Australian economic events next week; releases include January retail sales and Q4 GDP data.
 

New Zealand
The NZD is finishing the week on a firm note, although remains entrapped within recent ranges after a quiet week which saw trade dictated by risk and commodity pricing sentiment. Firming U.S. and European equities allowed the NZD to continue rising from its mid week lows in trade overnight. The overnight moves came despite a plunge in the Chinese equities (Shanghai Composite) which fell 6.4% in trade yesterday on the back of a spike in money market interest rates (a sign of tighter liquidity). Weaker overnight commodity prices and firmer U.S. data were also unable to undermine the NZD strength. The local data calendar has been sparse this week, but included trade numbers this morning which were better than expectations, mainly due to surplus exports. Comments from Finance Minister Bill English included ones over the RBNZ headroom to move interest rates lower in response to inflation. Events to watch next week include the next GDT dairy price auction (overnight Tuesday) and the Q4 terms of trade data earlier on Tuesday. ANZ business confidence numbers will feature on Monday.
 

United States
The USD has lifted marginally in trade so far this week, helped mostly by the decent declines seen by the EUR and GBP against the USD. Data released over the course of the week was mainly weak. Manufacturing and services PMI data, which failed to meet expectations, were accompanied by disappointments in the CB consumer confidence series, new home sales, house prices, and Kansas City and Richmond Fed indices. The durable goods orders numbers showed a strong rebound in January from the month prior however. Comments from Fed officials included ones from Bullard who said that it is ‘unwise’ to keep raising rates given falling inflation expectations and those from Lockhart which said the policy for rate hikes was data dependant. Treasury secretary Lew scotched talk of an “emergency response” to the evolving market turmoil at this week’s G20 meeting of finance heads and central bankers. Immediate focus for the USD is tonight’s second read of the Q4 GDP (expected to be revised lower). A busy week next week will be dominated by the February non-farm employment report on Friday.
 

United Kingdom
The economic fallout from a potential British exit from the EU (Brexit) has continued to place the GBP under considerable pressure this week. Fears have heightened after last week’s EU/UK summit on the issue and media reports which have featured the willingness of key politicians to support and campaign for a withdrawal at the 23rd June referendum. Additional pressure came on the back of comments from the BoE Governor Carney at the inflation report hearings which saw him reiterate the point that the BoE would have relatively little tolerance for further downside surprises, and that they could get relatively quickly to the point where a response was necessary. Data releases included the release of CBI industrial trend numbers which fell from the month prior and the second read of the UK Q4 GDP which displayed weakness in capital formation and private consumption being offset by government spending. Construction, Services, and manufacturing PMI data feature next week. Mortgage approval and lending numbers are set for release on Monday.
 

Europe
The dire performance of the GBP has weighed significantly on the EUR this week. Fears over the economic consequences for both regions of a British exit from the EU at the coming June UK referendum on the issue has been the primary driver of the observed weakness. Data released this week included an easing in the euro-zone and German composite PMI numbers and fall in the German IFO business sentiment data, the latter being driven by a decline in the expectations series. The data points to a softening in the Q1 German GDP from Q4. French consumer confidence and Italian industrial orders/sales/confidence data released during the week all posted declines. Inflation numbers continued to show a sluggish inflation environment across the euro-zone. Business climate and consumer confidence numbers for the euro-zone are due tonight. Next week’s key releases include regional and euro-zone PMI and unemployment numbers. Expect the GBP and Brexit issue to again have a strong influence.
 

Japan
The JPY sits near it’s near its opening levels of the week against the USD in present trade. The data calendar has been a particularly light one which included manufacturing PMI numbers, which missed the consensus declining from the month prior and inflation numbers today which exceeded the consensus forecasts. January PPI services numbers which failed to meet the market’s expectations were seen falling from the month prior. Risk issues and the safe haven status of the JPY has again been a significant driver of volatility. A week of consolidation in global equity markets has meant the JPY again faltered at its earlier highs around 111.00 against the USD. Comments from Japanese officials included ones from BOJ Governor Kuroda which said that the BOJ monetary policy was not aimed at weakening the JPY and that the expanded monetary base will not alone “pull up” inflation or inflation expectations quickly. The data calendar next week is a busier one which includes the release of industrial production, retail sales, and household/capital spending numbers amongst others.
 

Canada
The CAD has strengthened considerably against the USD in trade so far this week. The move comes on the back of a largely empty economic calendar and an oil market which had solid gains over the course of the week. Data released from the oil market included U.S. crude inventory numbers which rose to record highs for a fourth straight week. Prices were bolstered early in the week after reports from the IEA which spoke of a gradual rebalancing in the oil market in 2017, a view predicated on the expectation of a significant reduction in production from the U.S. shale oil patch. Marginal producers such as the U.S. shale oil companies have long been a target of Saudi Arabia in their effort to rebalance the market and protect market share. It is a busier week next week in Canada with the release of Q4 GDP data, the January raw materials price index, and at the end of the week the Ivey PMI data, and labour productivity and trade numbers.
 
 

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