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Economies of Note - 2nd July

Written by Ian Dobbs on July 2nd, 2015.      0 comments

It has been a relatively quiet week for data from Australia so far. We do have the trade balance out this afternoon to digest and tomorrow we also get retail sales figures. Yesterday’s release of building approvals had little market impact. They came in stronger than forecast at +2.4% which is a solid improvement from the prior -5.2%. Reserve Bank of Australia (RBA) Governor Stevens spoke earlier in the week and although he didn’t talk a great length on monetary policy, he did repeat the now familiar phrase that “further depreciation of the Australian dollar is both likely and necessary”. Jawboning of this type isn’t having any impact on the market now and the AUD actually rose a few points in the wake of his comments. We have the RBA rate meeting and statement to digest next week on Tuesday and this will provide the major focus for the market. Employment change data is also set for release, however there still seems to be issues with the completion of that figure, so the market will be wary of putting too much weight on any individual months result.

New Zealand
Data from New Zealand this week has only served to highlight the downside risks to the economy and strengthen the case for further easing’s from the Reserve Bank of NZ (RBNZ). Business confidence fell to a four year low at -2.3 down from the prior reading of 15.7. A gloomy agriculture sector led the decline and their pessimism was backed up last night with another big fall in dairy prices. The overall dairy index was down 5.9%, with key whole milk powder declining 10.8%. A soft auction was expected with increased seasonal supply coming onto the market, but these declines outpaced any forecasts. This is now the ninth decline in a row for dairy prices and a fresh five year low. Unfortunately it’s looking hard to see any quick turnaround for dairy prices or the dairying sector at this stage. Next week to draw focus we have another business confidence indicator, this time from the NZIER, along with the business NZ manufacturing index.

United States
We have seen largely supportive data from the United States this week. A solid improvement in CB consumer confidence was backed up by better than expected gains in manufacturing PMI and construction spending. Last night’s ADP employment change was also stronger than forecast and this has helped to cement expectations for a solid non-farm payrolls release that is scheduled to hit the wires tonight. It is usually out on the first Friday of each month, but as tomorrow is a public holiday in the States, its release has been brought forward to tonight. Next week we have non-manufacturing PMI, the trade balance and the Fed minutes to digest.

United Kingdom
We have seen some mixed data from the United Kingdom this week but certainly nothing that would suggest the Bank of England (BOE) need to be in any hurry to raise interest rates. The most encouraging result was from the final reading of GDP which came in as expect at +0.4%. However, the detail of the report was somewhat positive with a pick-up in business investment signalling potential for stronger growth ahead. Last night however, we had the first of the key PMI’s released and it was for the manufacturing sector. It came in softer than forecast and down on the prior month at 51.4. It’s also the lowest reading for manufacturing since April 2013. The stronger GBP is obviously hurting manufacturing to a degree. Tonight we get construction PMI and then on Friday night we get the service sector reading. Next week the highlight will be the BOE rate meeting. We also have the annual budget release, manufacturing production and the trade balance to digest.

We have seen no big surprises from European data this week and once again all the focus has been on Greece. They have now become the first advanced economy in history to miss a payment to the IMF. They join the likes of Cuba and Zimbabwe, and a number of other failed states, in effectively defaulting on a payment to the IMF. Rules dictate that Greece can’t now receive any further funding from the IMF until the arrears are cleared. A default like this doesn’t guarantee a Greek exit from the EURO and there has been plenty of comment from the EU that they want to keep Greece in the union, but it seems no one in the EU is keen to negotiate anything until after Sunday’s referendum. That may well be because it’s starting to look like the Greek people will vote for a ‘yes’ effectively saying they want the government to accept EU demands and remain in the Euro. This would dramatically reduce Tsipras’ negotiation power and may well see his leadership of the Syriza party under threat. One thing recent history has shown is just what poor indicators polls can be in predicting the actual outcome of a vote of referendum. One only has to look at May’s UK election to see how wrong the polls where. The market will therefore remain very nervous until the actual result is known.

We have seen a fair amount of data from Japan this week. Monday’s stronger than expected retail sales numbers were offset by softer than forecast industrial production and average cash earnings results. The key quarterly Tankan survey was released yesterday and it showed confidence is growing among large manufacturers. Big companies across all industries plan to boost capital spending this year by up to 9.3% which is a very positive sign. The weaker yen is also helping to improve competitiveness of many exporters. The results from smaller companies was not so positive. There was little to no change in confidence and outlook indices. Next week we get current account, core machinery orders, leading indicators and consumer confidence data to digest.

Canada’s raw material price index came in bang on exception this week and therefore had little market impact. The same can’t be said for GDP data however, which printed at a surprisingly soft -0.1% for the month of April. The market was expecting a result of +0.1%. The major drag was mining, which does include the oil industry. This sort of outcome does bring into questions the Bank of Canada’s (BOC) outlook for a rebound in growth after a very poor first quarter. Some forecasters are suggesting the BOC may even be forced to cut interest rates again. The Canadian dollar suffered as a result and has remained on the back foot ever since. Next week looks to be a busy one with Ivey PMI, the trade balance, building permits and employment change all set for release.