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Economies of Note - 26th September

Written by Ian Dobbs on September 26th, 2014.      0 comments

It has been a quiet week for data from Australia with only the Conference Board Leading Index released on Wednesday. That came in at 0.5% which is up from last month's 0.2%, although the market impact was limited. The Reserve Bank of Australia (RBA) released their Financial Stability Review and in it they again raised concerns about the amount of speculation in the housing market. This is something Governor Steven’s has mentioned before and the bank is genuinely concerned that the mortgage market is becoming unbalanced. New lending to investors is out of proportion to the rental housing market, and the bank is looking into macro-prudential tools as a way to try and curb speculative excess. This would be new ground for the RBA, but it is their only choice as rate hikes are not a viable option right now to deal with the housing market. The economic calendar looks a little better next week with retail sales, building approvals and the trade balance to digest.

New Zealand
We have seen a couple of data releases this week, but neither of them has had much of an impact on the currency. Westpac consumer sentiment declined to 116.7 which is in line with other confidence indicators, but it remains at a very healthy level. We also saw the trade balance come in much better than forecast at -472m. Exports of live animals were a big contributor to the better than expected result. Fonterra were out this week downgrading their forecast milk pay-out to NZ$5.30/kg. This was widely expected after recent falls in dairy prices. Fonterra’s net profit was also down a dramatic 76%. The key release on the week however, came out of the blue from the Reserve Bank of New Zealand (RBNZ). Yesterday afternoon they released a statement that heaped pressure on the NZD. To be fair it was mostly a repeat of things they have said before, but their timing was brilliant and releasing it by itself as a unscheduled announcement gave it more impact. The said the exchange rate was ‘unjustified and unsustainable and these are important considerations in assessing whether exchange rate intervention is feasible”. The NZD was immediately put under heavy selling pressure and that continued overnight. It was probably one of the most effective ‘jawboning’ operations we have seen in a long time. Next week we have building consents and business confidence data to digest.

United States
We have seen some mixed results from the United States this week, although taken overall, the releases support the ongoing recovery. Early in the week we saw existing home sales that came in below expectation and down on the previous month. Any negative impact from that was completely outweighed by new home sales data that jumped 18% on the previous month. That’s the biggest monthly rise since January 1992. Last night we saw core Durable Goods Sales that came in as expected at +0.7% and weekly jobless claims which held below 300k printing at 293k. Overall this week’s data would suggest the housing market is looking healthy, as is the employment market. Comments from Fed officials continue to suggest a rate hike sometime around mid-next year, with the risk that it happens a little earlier than that. Tonight we get the final reading of second quarter GDP with the market expecting a result of 4.6%. We also get consumer sentiment data and then next week we have manufacturing and non-manufacturing PMI’s, the trade balance and non-farm payrolls data to look forward to.

United Kingdom
We have seen three data releases this week that all came in a touch below expectation. However, their impact has been limited as ‘real money’ continues to flow back into the UK Pound in the wake of the Scottish ‘no’ vote for independence. Mortgage approvals, public sector net borrowing and CBI realized sales all undershot expectations, although none of the releases were weak enough to raise any real concerns about the economy. Bank of England (BOE) Governor Carney has also been on the wires saying the point at which interest rates start to rise is getting closer. He added there is no pre-set course for rates and the timing of hikes depends on data, however the judgment about when to raise them has become more finely balanced in recent months. Next week we have the trifecta of PMI’s from the manufacturing, service and construction sectors, along with the current account and the final reading of second quarter GDP.

France has thrown up a couple of better than expected results this week, with an improvement in French manufacturing PMI and an unexpected fall in the number of jobseekers. However, these were the only bright spots on the week with all other data releases suggesting the Eurozone is far from any meaningful recovery. Despite a raft of measures from the ECB recently, business activity grew at the slowest pace seen so far this year. This poor performance has been reflected in consumer confidence which fell to -11 from -10 previously, and the German IFO business climate index which fell to its lowest level since April 2013 at 104.7. Add to this the poor take up at last weeks targeted LTRO and you can see why many analysts are concerned about the Eurozone drifting closer toward outright deflation. This point is not lost on ECB President Mario Darghi who this week said the central bank was ready to use additional unconventional instruments within its mandate, and alter the size or composition of unconventional interventions if necessary. Draghi has proven he will do everything he possibly can, but as he has stated many times recently the ECB can’t save the Eurozone alone. Fiscal policy changes are needed from governments to help boost demand and it seems increasingly likely the region will remain in an economic malaise until that happens. The key releases next week are inflation on Tuesday and the ECB rate meeting on Thursday.

A bank holiday in Japan on Tuesday means it has been a quiet one data wise this week. The only release of note has been manufacturing PMI that disappointed coming in at 51.7 vs expectations of 52.5. The sharp decline in the value of the Yen over the past couple of weeks has drawn comment from a number of officials who have suggested excessive Yen weakness isn’t favourable for Japan as a whole. Prime Minister Abe said he will seek input from economists on whether the economy is strong enough before deciding to go ahead with the next consumption tax hike. In the last couple of hours we have seen inflation data that came in a touch weaker than forecast. Next week to draw focus we have household spending, industrial production, retail sales, average earnings and the quarterly Tankan report.

There has only been one data release from Canada this week and that was retail sales that hit the wires on Tuesday evening. The result was disappointing with the core number, that excludes autos, falling -0.6% vs expectations of flat. The headline number wasn’t much better coming in -0.1% against expectations of +0.4%. This data saw the Canadian dollar give back some of the recent gains it had made. Next week we have GDP and the trade balance to draw focus.