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Economies of Note - 26th June

Written by Ian Dobbs on June 26th, 2015.      0 comments

There has been no data of significance released from Australia this week. We did see the leading index fall 0.3% and the house price index come in lower than forecast at +1.6%, but neither of them are market movers. The IMF said the Reserve Bank of Australia (RBA) should be ready to ease if the recovery stalls and the country risks lower potential growth without reform. They added “We think interest rates where they are today are broadly appropriate, however we’re implicitly suggesting an easing bias. We see the risks to growth as somewhat tilted to the downside.” So basically they have a view pretty much similar to the RBA. Next week should prove more interesting with a speech from Governor Stevens to digest along with building approvals, trade balance and retails sales data.

New Zealand
It has been a relatively light week for economic data from New Zealand. On Monday we saw a small fall in consumer sentiment along with another record annual migration figure, but neither of them impacted the overall market. Data released from the Reserve Bank of NZ (RBNZ) yesterday showed property investor lending continues to be strong, up 7.6% in May. This isn’t the sort of thing the RBNZ wants to see, although their recent restrictions on minimum deposits for investors in Auckland don’t come into effect until October. Earlier this morning we saw the latest trade balance data which surprised on the strong side. The market was expecting a trade deficit of 100m but in fact the balance showed a surplus of 350m. This would have been more supportive of the NZD had the central bank not come out repeating its call that the currency level is ‘unjustified’ in the hour before the data was released. Next week from NZ we get building consents and business confidence data along with another dairy auction from Fonterra.

United States
The US housing market continues to look strong with further positive data this week in the form of existing home sales and new home sales. Both numbers came in significantly above forecast. The headline durable goods orders number was once again pretty soft, but the core reading, which excludes transportation, was much closer to forecast and this limited any real negative impact from the release. The final reading of first quarter GDP remained unchanged at -0.2%, as did weekly jobless claims at 271k. Both manufacturing and service PMI readings declined a touch and came in below expectation, which may temper optimism about growth going forward. These were offset by personal spending data which increased +0.9% versus +0.7% expected. That’s the largest jump since December 2009 and a healthy US consumer is massively important for the continued economic recovery. The Fed’s preferred measure of inflation, core PCE, came in bang on expectation at +1.2% year on year in May. Overall the data has had little impact on the USD or expectations for a lift off in interest rates in September. Next week to draw focus we have CB consumer confidence, ISM manufacturing PMI and non-farm payrolls data.

United Kingdom
We have seen three second tier releases from the UK this week all come in below expectation. CBI industrial order expectations, mortgage approvals, and CBI realized sales all disappointed relative to forecast signalling potential for a slight moderation in growth over the coming months. The Bank of England’s (BOE) Weale was quoted in a newspaper article as saying the BOE should be ready to raise borrowing costs as early as August. Weale is one of the two MPC members who have said their decision to vote for a hike is ‘finally balanced’, so it’s no surprise his comments are a little ‘hawkish’. The wider market however, isn’t pricing in much chance of a rate hike until early next year. Next week from the UK we get data on net lending to individuals, the current account, and GDP, along with manufacturing, construction and service sector PMI’s.

Data from Europe this week has generally been positive with improved PMI readings from the manufacturing and service sectors right across the board. Chief economist at Markit, Chris Williamson, summed it up nicely when he said “Despite the cloud of the Greek debt crisis hanging over the region, the Eurozone saw economic growth accelerate to a four year high in June. The PMI is signalling GDP growth of 0.4% for the region as a whole in the second quarter.” Unfortunately the only thing anyone has been focusing on this week has been the shambolic Greek negotiations. Encouraging talk about the basis for a deal last weekend has amounted to nothing, with both sides as polarized as ever. There were even reports last night suggesting Greek PM Tsipris was threatening to resign. The odds are now swinging in favour of a Greek default and potential exit from the Euro. No one knows how that would end up and what wider implications it would have. The only thing that is certain is that it would be very destabilizing for markets.

Japan released a rash of data earlier today which showed inflation continues to remain very soft. The key core inflation rate came in at just +0.1% down from the prior +0.3%. However, the market was expecting a soft reading. Household spending figures were more encouraging jumping 4.8% versus expectation of 3.6%. Unemployment remains at 3.3%. As is often the case with Japanese data, the Yen showed almost no reaction. Next week from Japan we get retail sales, average cash earnings, and the quarterly Tankan report.

There has been absolutely nothing in the way of economic data released from Canada this week. Next week looks pretty quiet as well with only the raw material price index and monthly GDP figures set for release.