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Economies of Note - 28th October

Written by Ian Dobbs on October 28th, 2016.      0 comments

Trade in the AUD this week has been largely focussed around Wednesday’s release of inflation data for the third quarter. The stronger than expected headline data saw investors chase the currency to briefly above 77c against the USD although continued demand for the greenback has seen it lose over 1c since. Underlying inflation remained soft and rose just 0.35% in the quarter whilst the annual underlying number marked the lowest year-on-year increase in the history of the survey, although did meet the RBA forecasts. The data has seen the probability for a rate cut drop to just 4% when the RBA meet next week. Other data of less interest included better than expected Q3 export prices and a moderately larger than expected fall in import pricing. The market showed little interest in the number and expect this to again be the case when we receive numbers on producer prices and HIA new homes sales this afternoon.

New Zealand
With little domestic influence to run off trade in the NZD has been heavily influenced by the weaker AUD and continued demand for the greenback which is benefitting from rising expectations of a December rate hike in the US. The only data received this week locally has been the September trade balance yesterday which saw the deficit widen from August. The 1.43B number was worse than expectations and was the largest trade gap since the series started in 1951. It came as capital good purchases expanded the import balance. Look for focus today to turn to the later US GDP data whilst next week’s data includes building consents, ANZ business confidence, GDT dairy price data, and employment data for the third quarter (the latter on Wednesday).
United States
Rising expectations of a December rate hike in the US (currently 74% probability priced in) have continued to propel the USD higher in trade this week. The week began positively on the back of firm manufacturing PMI data and comments from the Fed’s Bullard which supported a December move. CB consumer confidence and home sales disappointed, although the services PMI rose solidly in October (easily beating expectations). Better than expected trade and inventory data point to upwards analyst revisions to today’s first read of the Q3 GDP. Durable goods for September met expectations at the core level (and included upwards historical revisions) whilst pending home sales rose by more than expected in September. GDP data, Michigan consumer sentiment and employment costs are the focus to end the week whilst next week kicks off with personal consumption expenditure (PCE) and personal spending data on Monday although the FOMC on Wednesday will be the key focus.

United Kingdom
The data calendar has been relatively quiet in the UK this week which saw most investors looking to yesterday’s Q3 GDP report for direction. The stronger than expected growth for the quarter joined with a positive survey indicator from the retail sector on the day, although neither could disrupt the overwhelming influence of a stronger greenback. Data from earlier in the week included better than expected BBA mortgage approvals and a weak CBI industrial trend orders survey. Comments from BoE Governor Carney included ones which noted an expectation of soon seeing the effect of the weaker sterling on inflation and limits to which the MPC could look through inflation overshoot because of the weaker currency. Some weakness was noted prior to his speech after an investment bank pointed to research which indicated the GBP is still around 10% overvalued. Focus for next week is on UK PMI data and Thursday’s BoE interest rate decision where current expectations place a low probability on any move in rates.

This week has been quiet in Europe for market moving events. Economic data started with flash PMIs for the euro area and Germany which outperformed market expectations although had little impact. The German IFO for October lifted on the back of gains in manufacturing and construction and when combined with the Monday’s firm PMIs should bode well for growth in late 2016. German consumer climate numbers were seen marginally underperforming ahead of tonight’s consumer and business data which is due from the euro area. Comments from ECB President Draghi pointed to the effectiveness of monetary policy although he acknowledged that low interest rates were not without costs. In focus today are the regional inflation prints whilst next week starts with inflation numbers from across the euro area on Monday.

October’s trend of a weaker Yen against the USD has continued in trade this week. The move comes after the greenback continued to rise as expectations for a Fed move in December gather strength. Data this week started with trade and manufacturing numbers which beat expectations on Monday. Corporate services pricing marginally exceeded expectations although the main focus has been on today’s inflation and household spending data which failed to excite after the national inflation levels printed in line with expectations (-0.5%) and household spending rose by more than expected for the month of September. Focus for next week will be on the BOJ meeting scheduled for a conclusion on the 1st November. Current expectations are for an unchanged policy outcome and likely lower inflation outlook. Industrial production and construction/housing data are scheduled for Monday although should garner little reaction.

The Canadian dollar remains soft in trade against the greenback this week. Local positives seen over the week included news in recent trade that Belgium had agreed to terms on the EU-Canada trade deal, a deal which has been 7 years in the making. Comments from the BoC Governor Poloz sent the CAD higher for a time earlier in the week after the market took the response to a question as indicating that monetary policy would be on hold for the next 18 months, although Poloz clarified shortly afterwards that he was referring to closing of the output gap and not monetary policy. Local news has been scant this week. The only data received has been wholesale sales numbers for August which marginally exceeded expectations and had no market impact. Data of interest next week mainly comes on Friday as we receive numbers on employment, trade and the Ivey PMI. GDP data on Tuesday will also be keenly watched.