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Economies of note - 29th November

Written by Ian Dobbs on November 29th, 2013.      0 comments

3:30pm (NZT)
Australia
Data from Australia this week has mostly come in on the strong side. However, that hasn’t stopped the Australian dollar coming under continued pressure for much of the past five days. Wednesday’s release of construction work done was a pleasant surprise, coming in well above expectation. That will be pleasing for the RBA who are looking for a transition in economy from mining investment to other sectors. Thursday saw the release of new home sales which showed a decline, but this was completely outweighed by the capital expenditure data for the third quarter. The result of +3.6% verses and expectation of -1.2% gave the currency a much needed boost. This surprise rise in business spending is another sign that the ‘transition’ the RBA are looking for is slowly taking place. Next week is a big one for economic releases with building approvals, retail sales, the RBA rate statement, GDP, and the trade balance, all scheduled to hit the wires.


New Zealand
This week has seen some strong numbers from New Zealand that have served to highlight the positive economic outlook. Wednesday saw the release of the trade balance which came in at -168m. That is the lowest deficit for an October month since the mid-1990s. Imports were higher than expected, but exports massively outperformed with milk powder and forestry notable improvers. The good news continued on Thursday with business confidence data that jumped to the highest level in five years. We also heard from the RBNZ who said they see the LVR lending limits having an effect with high value lending falling by half in October. They did however say it was too early to assess the impact of the restrictions on house prices. Earlier this morning we had building consents data which showed little life printing at -0.6%. Next week will be a quiet one for data with on the overseas trade index of any note.
 

United States
The past week has seen a mixed bag of data from the US, but overall the market has been focusing on the positive. This has seen the USD make solid gains against most other currencies. A soft reading on pending home sales was countered by better than expected building consents data. Consumer confidence and durable goods orders both missed expectations and were down on the previous month. These were not great results but we have also seen a couple of regional surveys, in the form of the Richmond Manufacturing index and the Chicago PMI, which showed solid improvement. Weekly jobless claim also fell again and the current level is consistent with a monthly payrolls figure (to be released next Friday) of around 200k. Taken together, it’s hard to see this data having the sort of impact required to trigger a Fed QE taper in December, but that been said, the USD has certainly performed well over the course of the week. There is plenty of key data to look forward to next week with both manufacturing and non-manufacturing PMI’s, trade balance, GDP, and Friday’s employment report all scheduled for release.


Europe
There hasn’t been a lot of key data out of Europe so far this week. Most of the releases have been second tier stuff such as the German Consumer Climate and German inflation which both came in a touch stronger than expected. These releases have only served to highlight the divergence between the German economy and the rest of Europe. Tonight we get what will arguably be the highlight of the week when the first estimate of Euro-zone inflation is released. Last month’s surprisingly weak result of 0.7% proved to be the trigger for the latest ECB rate cut, and the market is expecting only a small improvement to 0.8% this month. The past two weeks have seen numerous officials all singing the same tune about the possibility of negative interest rates. It’s not uncommon to get central bank officials voicing completely diverging views, so when you hear such a consistent message from a range of sources, it screams of an organised attempt to get a message out. I would not be surprised to see the ECB take rates negative at some stage in the New Year. With Germany refusing any outright attempts at quantitative easing there is little else in the way of extra-ordinary measures the ECB can use. The central bank meets again next week and there should be no surprises at this meeting. Ahead of that we have retails sales data and the revised GDP figures.


United Kingdom
It has been another week of generally supportive releases for the UK economy. Third quarter GDP revised headline data was in line with expectations, but looking into the details showed up better household consumption and that help to support the GBP. The big surprise this week came in the detail of the BOE’s financial stability report. The BOE used that report to announce that they are going to withdraw the funding for lending scheme in relation to mortgage lending. The scheme will still stay in place for business lending. This is a positive sign that the central bank views the economy strong enough to withdraw on of the extra ordinary measures put in place during the crisis. It is also in response to concerns of a housing bubble building in the sector. Governor Carney said this will contribute to stability in the housing market which has been very buoyant, particularly in the south east of the country. Earlier in the week when testifying to a parliamentary committee, BOE officials were very balanced in their views. Ben Broadbent said they are a long way from winding down quantitative easing, and Spencer Dale said the Eurozone weakness will continue to be a drag on the economy. The next step for UK economy is to generate a pickup in domestic demand, but with wage inflation so low that could be hard to come by. There is still plenty slack in UK economy, but they are most definitely heading in the right direction and this is providing support for the GBP. Next week we have PMI surveys for the manufacturing, construction, and service sectors to draw focus, along with the BOE rate decision.


Japan
Retail sales data out of Japan this week was a touch better than expected at +2.3% in October from a year earlier. The government said it is a sign that household consumption may be leading the nation’s economic recovery. That may be partially true, but wages will need to start growing for this trend to continue. In the last couple of hours we have had inflation, industrial production and household spending figures released. The inflation figures continue to be encouraging, but industrial production and household spending both disappointed. This further proves there are still many hurdles to overcome. Next week we get data on capital spending, average earnings, and a speech from governor Kuroda.


Canada
The key data for Canada this week gets released tonight in the form of GDP. The market is expecting a result of 0.1%, which would be a decrease from the previous months 0.3%. Last night we did have two other figures released. The raw materials price index came in below expectation showing a fall of -2.3%, largely due to falling energy prices. And the current account continued to deteriorate to a large deficit of -15.5bln. This last figure is a real concern and is one of the reasons Goldman Sachs has put out a negative prediction for the Canadian dollar in 2014. Next week there is plenty of data to digest with the trade balance, Bank of Canada (BOC) rate statement, building permits, Ivey PMI, and employment change all set for release.
 

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