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Economies of Note - 28th March

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

12:15pm(NZT)
Australia
A lack of hard data from Australia this week hasn’t stopped the AUD from powering higher. We have seen comments from both the RBA Governor and Deputy Governor, and there was a notable lack of trying to ‘jawbone’ the currency down in both releases. This only spurred the AUD on further. We also saw the release of the RBA Financial Stability Review which was reasonably positive. In it the central bank said that deleveraging had run its course and that financial conditions have improved. They went on to say indicators of household stress remains low with many households still paying down mortgages more quickly than required. The also said they don’t believe present housing conditions represent a risk to financial stability. This runs slightly contrary to what Governor Stevens said in his speech on Wednesday afternoon. He stated that rising asset prices bear watching and investors should be aware of risks in housing. Steven’s doesn’t see the risk of a persistent or serious rise in inflation, and he says the lower AUD since last April is helping the economy. Next week we do get some hard data and it will be interesting to see if it supports the current level of the currency. We get new home sales, private sector credit, building approvals, retail sales, and the trade balance, along with the RBA’s cash rate review and statement on Wednesday.


New Zealand
There has been a lack of key economic releases from New Zealand as well this week. The only scheduled data was the trade balance out yesterday which came in better than forecast at +818m vs +600m expected. There was almost no impact on the currency however, which has been dragged higher by a rampaging Australian dollar this week. Finance minister Bill English was on the wires saying he expects the NZD to decline over time, and that we can expect more volatility in the Chinese economy. He’s likely to be proven right there with the dominos slowly starting to fall in China in relation to problems caused by unprecedented credit expansion. This could well prove to be the biggest focus of 2014 not just for China, but the world. Domestically this week there have been a couple of releases that suggest house price pressure in Auckland could well abate later this year. The most recent RBNZ statistics show low deposit loans for February made up just 5.2% of new lending. This compares to 25.4% back in August last year. We have also seen data on consents for new sections and dwellings in Auckland which has shown a big improvement thanks to the Housing Accord agreed between the Council and Government. 3600 new consents were issued in just four months, putting them on target to approve 10,800 in the first year. This is well above the target of 9,000. Add into the mix further interest rate rises and it’s hard to be too bullish about the prospect of further price gains from what are extremely elevated levels. Next week we get nationwide building consent figures along with a reading on business confidence.


United States
We have seen a mixed bag of data from the United States this week. The USD seems to have been focusing on the negative however, having being under pressure across the board for much of the past five days. On the positive side consumer confidence for March lept higher coming in at 82.3 vs 78.5 expected. This is the highest reading since 2008. The headline durable goods number was also stronger than forecast at +2.2%, although the core number that excludes defence and aircraft actually fell by -1.3%. We also saw an improvement in the services PMI index to 55.5 from 53.3 previously. Expectations were for a result of 54.2. Weighing on the USD however has been data from the housing sector. The house price index came in below expectation as did data on new home sales. We also saw the Richmond Fed manufacturing index (a lead indicator of wider manufacturing) print at -0.7 vs expectation for +0.4. Last night’s release of pending home sales and GDP we also both weaker than expected and as a result the USD has remained under pressure. Next week will be interesting with a number of key releases. We get manufacturing and non-manufacturing PMI’s, the trade balance, and non-farm payrolls data, along with a number of second tier releases.


Europe
The only really positive release of data from Europe this week came on Monday when both manufacturing and service PMI’s from France jumped back up over the 50 level. However, there was a slight fall in the corresponding German numbers. Since then we have seen a weaker German business climate index and a big jump in French jobseekers. In fact total number of job seekers in France now stands at a record 3.347 million. Clearly, the Eurozone still has a long way to go. We’ve also had plenty of comments from officials eager to keep a lid on the currencies appreciation against the USD. The ECB’s Makuch says there are higher deflation risks in the Eurozone and the ECB will act if needed. President Draghi said the Euro’s appreciation was due to a return of confidence, and that the ECB was paying close attention to exchange rate developments. He added the central bank is ready to take additional measures if needed. We have the ECB rate meeting and press conference at the end of next week and Draghi will no doubt continue to try and talk the currency down. Ahead of that we get data on inflation, retail sales, GDP, and unemployment.


United Kingdom
We have seen generally supportive data from the United Kingdom this week. Headline Inflation data (CPI) released on Tuesday came in bang on expectation, although the core reading and the RPI (Retail Price Index) were a touch stronger than forecast. This was countered somewhat by a softer reading from the CBI realized sales index which fell to 13 from 37 previously. Last night we got the official data on retail sales for February and it came in at a very strong +1.7%. The market was expecting +0.5% and as result the GBP received a decent boost. Tonight we get the latest current account data and a final reading of quarterly GDP, while next week we a trifecta of PMI’s from the manufacturing, construction, and services sectors.


Japan
It has been a quiet week for Japanese data with only the Corporate Services Price Index (CSPI) released so far. That came in a touch weaker at +0.7% vs expectations of +0.8%. We do get a raft of data later today which includes inflation, unemployment, and retail sales. These will all be closely watched. The Government has announced that it will bring forward public works spending in an effort to offset Aprils sales tax increase. We have also seen a number of comments from Government officials suggesting the Bank of Japan (BOJ) should act quickly if the tax hike leads to spending weakness. The highlights from next week’s economic calendar will be industrial production on Monday, and the quarterly Tankan survey from both the manufacturing and non-manufacturing sectors on Tuesday.


Canada
There have been no data or economic releases of significance from Canada so far this week. We did get news that the government has approved four new licenses for natural gas export projects. Although these projects will require significant capital expenditure the benefit to the currency will only really be seen over the very long term. Next week’s calendar looks a lot healthier with GDP, the trade balance, employment change, and Ivey PMI all set for release.
 
 

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