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Economies of Note - 26th May 2017

Written by Ian Dobbs on May 26th, 2017.      0 comments

12:45pm(NZT)
Australia
We have only had some minor second tier data released from Australia this week and it’s had little effect on the markets. The CB leading index increased 0.5% up from 0.4% prior, while construction work done disappointed printing at -0.7% vs -0.5% expected. The Australian dollar has struggled to maintain a firm footing this week undermined by Moody’s downgrade of China on Wednesday and soft commodity prices. It heads into the end of the week feeling a little soggy. Next week's data will be of more interest with building approvals, private capital expenditure and retails sales all set for release.
 
 
New Zealand
It’s been a very quiet week data wise from New Zealand. We did get the trade balance on Wednesday which came in much stronger than forecast and that helped to support the NZ dollar somewhat. NZ produced a trade surplus of 578m in April driven by dairy, wood and wine exports. This was the largest trade surplus since March 2015. Fonterra released their revised milk price forecasts lifting it 15 cents to $6.15/kg for the 2016/17 season. For 2017/18 they are forecasting a pay-out around $6.50/kg. These sorts of numbers will make pleasant reading dairy farmers and rural economies in general. Yesterday’s government budget release drew plenty of media attention, but there was little impact in the market. There are never any real surprises in the budget detail these days and yesterday was no different. In an election year the government was always going to what it feels is just enough to get re-elected, and that’s certainly what this budget felt like. The NZ dollar has had a relatively solid week making gains across the board. It is now however at reasonably healthy levels against a number of other currencies and any further potential gains will be much harder fought with key resistance levels not far away. Next week is another quiet one with only building consents, business confidence and the RBNZ Financial Stability Report of any note.
 
 
United States
The US dollar has seen some pressure this week weighed on by mixed data and the Federal Reserve minutes. The minutes showed the Fed believe another rate hike relatively soon would be appropriate, but that it would also be prudent to wait for evidence that the recent slowdown in economic activity is indeed transitory. So while a June interest rate hike is still well on the table, if we got a series of soft releases between now and then they may decide to hold off. Currently the market is pricing in around an 80% chance of a June hike. Tonight sees the release of some key data with Core Durable Goods Orders and Preliminary GDP set to hit the wires. Monday is a US holiday so next week will start off slowly, but later in the week we have consumer confidence numbers, manufacturing PMI and non-farm payrolls data.
 

United Kingdom
The tragic events in Manchester this week have been the main focus for the UK with economic releases taking a back seat. The GBP has struggled for direction and remained largely range bound against the USD. It has however underperformed against the NZD and AUD. Revised first quarter GDP for the United Kingdom was released last night and it came in a touch lower than forecast at +0.2%. Expectations were for a result of 0.3%. While election campaigning was suspended in the wake of the Manchester bombing, the latest YouGov poll show’s PM May’s lead down to 5 points with the Cons at 43 and Labs 38. The June 8 elections is likely a one horse race, but the margin of victory may not be as great as first thought. This could pressure the GBP somewhat. Next week is pretty quiet on the data front with just manufacturing and construction PMI’s of any note.
 
 
Europe
Europe economy continues to improve and PMI data this week has served to underscore that. Solid results from the manufacturing and service sectors have helped to support the Euro, as did the German IFO business climate survey which increased to 114.6 from 113.0 prior. ECB President Draghi spoke this week and he moved to pour cold water on any speculation that the central bank could change it current policy setting any time soon. The central bank is determined to fully implement its quantitative easing programme which involves 60bln of purchases each month through to the end of the year. Draghi also reinforced the view that although economic growth is finally progressing nicely, underlying inflation remains low and that allows them all the room they need to continue with QE. Next week's economic calendar contains a raft of second tier releases with the main focus likely to be the flash CPI estimate out on Wednesday. Draghi is also set to speak again, although the tone of his comments is unlikely to differentiate from this week.
 

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