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Economies of Note - 29th July

Written by Ian Dobbs on July 29th, 2016.      0 comments

Investor attention in Australia this week has so far focused on second quarter inflation release and yesterday’s US FOMC monetary policy meeting. Both events caused a quick bout of volatility, although trade for the majority of the week has been contained within a tight range of ~1c around the .7500 mark against the USD. Wednesday’s inflation data came in largely in line with expectations for Q2, albeit the annual headline inflation rate of 1% was 0.1% under expectations and sits well adrift of the 2-3% RBA target policy. The data shows headline inflation running at its slowest since 1999 and underlying inflation running at record lows which has the market pricing in ~55% chance of a move lower in the cash rate next week. The case for a cut is far from clear cut however given the other pressures in the economy, most notably so in the heated housing sector. Terms of trade data for the second quarter received a 2.7% boost on the back of a combination of both higher export prices and lower import pricing. In focus today is data on producer prices and private sector credit at 1.30 pm (AEST).

New Zealand
This week has been a particularly quiet one for local market moving news events in NZ which has seen the local unit drift higher on the back of a correction in the greenback after yesterday’s US Fed monetary policy meeting. Data released during the week included trade numbers for June which printed in line with expectations on the back of a rise in exports which were boosted by a 47% jump in kiwifruit sales. Building consents data issued this morning were seen rising sharply from levels observed on the month prior. In focus this afternoon is the ANZ business confidence survey, although expect a quiet finish to the week given the relatively low impact nature of the release. Next week looks set to see a lift in interest as the market looks across the Tasman for the RBA interest rate decision on Tuesday bore attention will turn to the local employment data for the second quarter and the latest GDT dairy auction on Wednesday.

United States
Focus for the week in the US was on yesterday’s meeting of the US Federal Reserve board of monetary policy makers.  The meeting saw the Fed talk of reduced near term risks to the US economic outlook and note an improvement in the labour market as they spoke of strong growth in household spending and a moderate expansion in economic activity. Expectations for a move in rates by year’s end eased from around 50% prior to the meeting to 45% after the announcement. Data this week started with better than expected numbers from the Dallas Fed manufacturing index and CB consumer confidence data. Data from the housing sector was again strong after new home sales rose by more than twice the consensus in June. Some weakness was seen in the latest pending home sales number however, after it failed to meet the 1.4% gain expected, although the small rise was a large improvement on the month prior. Other numbers included disappointing durable goods orders which fell from the month prior on the back of weakness in transport- whilst the latest weekly jobless claims data also showed weakness from the week prior. Focus for the USD now turns to today’s first read on the Q2 GDP and later Michigan consumer sentiment numbers.

United Kingdom
Trade in the pound has been well contained this week in what has been a relatively sparse release schedule ahead of next week’s key BoE monetary policy meeting. Data on the second quarter’s GDP released on Wednesday showed Britain’s economy growing by a faster than expected 0.6%. Growth across services led by retailing, pharmaceuticals, and car manufacturing bolstered the data. The performance from the industrial sector was the best in almost 17 years and showed that businesses appeared to be shrugging off Brexit jitters in the lead-up to the 23rd June referendum. Growth looks set to lower in the coming quarters after the vote however, and comes as Britain’s largest lettings and estate agent Countrywide Group warn of a weakening in many parts of the UK’s property market and a slump in commercial and residential transactions in London. Data from the CBI survey of reported sales declined sharply in July and adds to a number of other soft post-Brexit confidence surveys. Data from the UK’s largest building society showed house prices lifting 0.5% in July against expectations of a fall, although economists warned of the lag in mortgage demand which would cloud any Brexit based slow down.

An easing in the greenback after yesterday’s US Fed meeting has helped the Euro firm in trade into the end of this week. Local leads have had a limited impact given their low impact nature. Data started with the German IFO which beat expectations after it showed a small dip from the month prior. German inflation was seen running slightly higher than expectations as it rose to a six month high, whilst the latest unemployment numbers from Europe’s largest economy fell marginally more than the consensus. Consumer confidence across the Eurozone was seen matching the weak expectation, although sentiment across the services and industrial sector’s managed to beat their respective estimates. In focus are the latest inflation and GDP numbers for the Eurozone later today. Yesterday’s German data may bode well for the inflation numbers today, although the recent decline in energy prices and downwards revisions to many economist forecasts for inflation in 2017 and 2018 imply an inflation outlook that will be slow in returning to more normal levels.

Today looms as a pivotal day for the JPY with the much awaited announcement of the Bank of Japan (BOJ) monetary policy review this afternoon. BOJ Governor Kuroda is expected to deliver additional stimulus to that already announced by the government earlier in the week. News earlier in the week of a 28 trillion Yen fiscal stimulus (5.4% of GDP) by the government caused significant volatility over the announcement. This caused the Yen to fall initially on the news before it subsequently retraced after it became apparent that little of the package was actually new money and that it would be spread over many years. Data released this week has been concentrated on numbers released this morning. The raft of data was mixed overall, although the key inflation numbers disappointed on a nationwide level after they fell 0.5% y/y. Other indicators included household spending whose rate of decline doubled from the month prior on an annualized basis, whilst both the unemployment rate and industrial production releases provided positive surprises.

Trade in the Canadian dollar which has been moribund so far this week comes on the back of a lack of local data. Added to the tone has been the fact the currency market has largely overlooked continued weakness in the price of oil in lieu of a USD which has eased against most of its key peers after yesterday’s FOMC meeting. Local focus has been on the housing sector in Canada after the state of British Columbia moved to introduce a 15% tax on foreigners who buy property in Metro Vancouver. The move comes as policymakers move to tackle affordability problems in red hot markets like Vancouver and Toronto . This comes as concern mounts over the building reliance that the Canadian economy has on the wealth effect of rising house prices which has seen real estate become the largest contributor to GDP in seven of the 10 Canadian provinces. Latest data on GDP will be in focus today as the numbers for May are received, although the simultaneous release of the US GDP numbers look more likely to overshadow.