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Economies of Note - 27th November

Written by Ian Dobbs on November 27th, 2015.      0 comments

The Australian dollar overcame a poor start trading to highs not seen for over a month this week. Commodity price declines and concerns over a China slowdown dominated sentiment towards the AUD at the start of the week. The construction work done release on Wednesday failed to excite after it missed the -2.1% expectations, falling 3.6% in Q3. The more important private capital expenditure data release yesterday placed the AUD under pressure after it missed expectations by a wide margin. It fell 9.2% in Q3 (-3.0% exp.), but estimates for next year’s spending which were slightly better than expectations at $120.4 billion helped minimise the fallout. Mining investment fell 10.4% in the quarter and 29.6% during the year. The expectation for a transition to non-mining investment failed to materialize after it was seen falling 6.9% in the quarter and 5.2% during the year. The disappointing numbers are likely to pressure expectations for next  Wednesday’s Q3 Australian GDP release. Other data to be released next week includes private sector credit and HIA new home sales data on Monday, the RBA interest rate decision on Tuesday, October trade data on Thursday, before the busy week is rounded out with October retail sales on Friday.

New Zealand
It has been a quiet week for the New Zealand dollar after it was seen consolidating around recent levels, trading with a 1c range (~.6500-.6600). Commodity price declines at the start of the week placed the NZD under some pressure as it fell in line with a lower AUD. Although by week’s end it trades near the upper bound as lack-lustre holiday market trade failed to provide any real follow through, ignoring increased geopolitical tensions in the middle east. Local data flow this week included record immigration numbers for the year to October released on Monday (62,477) and the October trade balance yesterday which printed very close to expectations at -963M for the month. Next week we look forward to ANZ business confidence and building permit data on Monday and the next GDT dairy auction on Wednesday morning.

United States
The USD remains on the front foot this week despite a mixed bag of incoming data during the week. This started with misses in both the Markit Manufacturing PMI (52.6 vs. 53.9 exp.) and existing home sale data (-3.4% m/m vs. -2.3% exp.) on Tuesday morning. The second estimate of U.S. Q3 GDP met expectations at 2.1% q/q (annualized) having been revised up from the 1.5% advance release, although was influenced by inventory accumulation. Consumer confidence was seen slipping to its lowest levels in a year after it fell to 90.4 in November (99.5 exp.). The Richmond Fed index at -3 also failed to meet the expectations. October durable goods data was strong after it rose 3% m/m (1.5% exp.) Whilst the labour market data continued to point to a solid labour market after initial weekly jobless claims fell to 260k against the 270k expectations. The University of Michigan consumer sentiment final read was revised lower to 91.3 from 93.1, although inflation expectations ticked higher. Next week’s highlight will be the release of the critical November Nonfarm payrolls employment data on Friday, manufacturing and services PMI data releases will also feature during the week.

United Kingdom
The GBP has eased this week on the back of Euro weakness in what has been a very quiet week data-wise prior to tonight’s preliminary U.K. Q3 GDP release. BOE Governor Carney’s testimony to the Treasury Select Committee on the Quarterly Inflation Report provided little further insight on near term monetary policy direction. The GBP gained some reprieve after the autumn fiscal update showed higher U.K. growth forecasts. Focus will now turn to the GDP release tonight. Next week’s busy data calendar includes mortgage approval and consumer credit data on Monday, Markit manufacturing PMI data on Tuesday, followed by the construction and services PMI data on Wednesday and Thursday.

The Euro remains pressured this week after comments from ECB vice president Constancio regarding the euro area inflation outlook which have served to reinforce expectations of additional policy accommodation at next week’s ECB meeting. Data releases were mainly positive however and started with an upside surprise to the Euro-zone flash PMIs after the aggregate composite printed at 54.4 (53.9 exp.). The German IFO survey release was strong across the board; the headline business climate index rose to 109.0 in November from 108.2 in October and was driven by a lift in both the current assessment and expectations series. German Q3 GDP data met expectations of +1.8% y/y. Immediate focus now turns to tonight’s low impact consumer confidence and business climate data before next week’s heavy calendar which is dominated by the ECB monetary policy meeting (overnight Thursday). The host of other releases includes amongst others German inflation and unemployment data, euro area manufacturing and service PMI data, and the Euro-zone Q3 GDP release (Friday).

The JPY sits off its lows this week on the back of mid-week safe haven buying after the downing of a Russian jet by Turkish armed forces raised geopolitical tensions in the Middle East. The BOJ monetary policy meeting minutes release on Wednesday failed to add any impetus to the market. BOJ members noted in the minutes that inflation expectations were rising from a long-term perspective. Preliminary November Manufacturing PMI data released the day prior beat expectations after printing at 52.8 (52.1 exp.). Data released today showed an improvement in the unemployment rate to 3.1% in October (from 3.4%), whilst inflation (Ex. food and energy) came in at 0.7% y/y in October, just shy of the 0.8% expectation. Next week will see a raft of low impact releases including housing starts, construction orders, and the Nikkei manufacturing PMI amongst others. Industrial production and retail trade data due for release on Monday may have a more meaningful impact.

Trade in the CAD has been dictated by energy market developments this week, this sees the CAD finish the week higher than levels seen at the start of the week. Initial gains were made after oil prices lifted on the back of statements made by Saudi Arabia which repeated its intention to cooperate with OPEC in order to stabilise oil markets. Further gains were seen on rising geopolitical tensions after oil prices lifted further in response to the downing of a Russian aircraft by Turkish armed forces near the Turkish border. Next week sees a busy Canadian data calendar which includes the BOC interest rate decision (Thursday morning), GDP (Wednesday morning), before the week is rounded off with unemployment and trade data along with the Ivey PMI release on Friday.