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Economies of note - 28th February

Written by Ian Dobbs on February 28th, 2014.      0 comments

There has only been two economic releases so far this week from Australia, and they have both disappointed. This first was construction work done which came in at -1.0% against an expectation of +0.4%. This will make very unpleasant reading for the RBA who are hoping the economy will transition away from mining led investment. Data like this suggests that could be an extremely long slow process. Further evidence of a very weak non-mining recovery hit the wire yesterday with the release of private capital expenditure. The fourth quarter result of -5.2% was a big miss from expectations of only -1.3%. Looking into the detail of the report didn’t provide any better reading with estimates for 2014/15 capital spending coming in significantly below forecast as well. As you can imagine these releases were negative for the Australian dollar which has also been weighed on by a recently declining Chinese Yuan. Next week should prove interesting with building approvals, the RBA rate meeting, GDP, retail sales, and the trade balance all set for release.

New Zealand
Economic releases from New Zealand have been overwhelmingly positive this week. Decent credit card spending figures on Monday were followed by stable inflation expectations data on Tuesday. Yesterday there was more positive news with the trade balance coming in well above expectation at NZD 306m for January. That’s the third straight surplus. A notable feature of the report was exports to China that jumped 92%. They are now by far the biggest export market accounting for 30% of total exports. Milk powder, butter and cheese account for a massive portion of those exports and with prices remaining strong Fonterra have hiked their forecast payout for the third time in a year. They now expect to pay a record $8.65 (up from $8.30) per kg of milk solids to farmers in the 2013/14 season. That equates to an extra $500m flowing into the NZ economy. We have also seen migration data that showed January produced a net gain of 3,100 migrants. This is the highest monthly gain in over 10 years. It seems a large part of increase is a result of fewer New Zealanders leaving for Australia, as well as more non-NZ citizens arriving. Data like this supports the outlook for continued pressure in the housing market, especially in Auckland where many migrants look to settle. This morning we have seen building consents data which surprised to the downside coming in at -8.3%. Expectations were for a result around -3.5%, although the market impact has been muted so far.  Next week is a very quiet one data wise with only the overseas trade index set for release on Monday.

United States
Data from the United States this week has been somewhat mixed with a couple of releases bucking the recent trend of soft weather driven results. New home sales for January came in at a surprisingly strong 468k against an expectation of 406k. This does fly in the face of other indicators that suggest a much less buoyant housing market. Analysts do note that this data can be volatile around this time of year and hence they’re not putting too much weight behind the report. The other positive release came in the form of core durable goods orders. This is a closely watched indicator to the health of manufacturers, and the surprise +1.1% result vs expectations of -0.3% is certainly good news. The previous month had seen a 1.9% fall, blamed largely on poor weather, so this month’s result represents a decent bounce back. On the side of the coin this week we have seen soft readings for services PMI and the Conference Board consumer confidence index. Last night’s release of weekly jobless claims also unexpectedly jumped higher. Fed chair Janet Yellen was speaking last night and she has acknowledged the recent soft data, although she gave no indication that is has gone far enough to affect current policy. Data to watch tonight comes in the form of GDP and pending home sales. While next week the highlights will be manufacturing and non-manufacturing PMI, the Fed's Beige book, trade balance, and non-farm payrolls data.

The European Commission released forecasts this week that suggest only a mild recovery in the region over the next two years. They see only tepid growth through 2015 and warn that lingering debt burdens and the specter of deflation could sabotage the recovery. After two years of contraction they see growth of 1.2% this year, and 1.8% next. This will barely be enough to dent unemployment which they see staying near record highs of 12% this year and 11.7% in 2015. Hardly inspiring stuff. Inflation is forecast to remain well below the ECB’s 2% target, improving from 1% this year to only 1.3% in 2015. We have had some positive news this week with the German business climate index and German consumer confidence both beating expectations. Euro area inflation for January was also revised up a touch to 0.8% from the previously reported 0.7%. We get the first estimate of February inflation tonight and it is expected to fall back to 0.7%.  Risks for this number are to the downside and this was highlighted last night after German inflation came in below expectation at 0.5%. Next week we have the ECB rate meeting which could prove a very interesting event. There is a real chance of further action from the central bank to help support the recovery. Ahead of that we get manufacturing and service PMI data along with German factory orders.

United Kingdom
The Confederation of British Industry (CBI) released a report on Tuesday that showed retail sales volumes in February rose to the highest level since mid 2012. The CBI index of realized sales surged to 37 from 14 in January. Expectations were for only a very small increase to 15. We have also seen data this week on mortgage approvals that have hit their highest level since September 2007. The bigger than expected rise of 50,000 for February comes on top of an upwardly revised December number of 47,100. It certainly seems the UK recovery continues to build momentum. However, Bank of England (BOE) officials have been stressing that rate hikes aren’t planned for any time soon. The BOE’s Miles was quoted as saying just that, along with the fact that he feels more optimistic about the future than any time in the last five years. He also believes the UK is approaching a turning point in real wages during which wage growth should outpace inflation. This would be a key event that would help produce a sustainable long lasting recovery. BOE Governor Carney gives a speech tonight that will be closely watched, and next week we get manufacturing, construction and services PMI data. We also have the Bank of England rate meeting scheduled for Thursday evening.

Last week’s data was decidedly average from Japan and so far this week we have only seen a second tier release of the Corporate Services Price Index which printed at a disappointing 0.8% vs expectations of 1.2%. Today we saw a raft of data released with the focus on the higher than expected inflation and retail sales numbers. Earlier in the week the lack of data has kept the Japanese Yen relatively subdued, and the data release have little changed that theme, with the YEN seeing just a little increased demand.

There hasn’t been a lot of data out of Canada so far this week. The key release will be monthly GDP data out later tonight. Statistics Canada did published their investment forecasts that suggest investment is going to fall to its lowest level since 2009. They are forecasting public and private investment of only +1.4% in 2014. Last night’s release of current account data showed the deficit continues to widen. This was partially driven by lower prices for exports of crude oil. The deficit was however, less than forecast. Next week should provide a better view on the performance of the Canadian economy with building permits, Ivey PMI, employment change and the trade balance all set for release after the Bank of Canada’s rate statement on Thursday morning.