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Economies of Note - 2nd June

Written by Ian Dobbs on June 2nd, 2016.      0 comments

Strong local data has rescued the AUD this week from further declines against the USD which had seen it lose almost 7 cents over the course of the last 6 weeks. Key economic releases this week so far have nearly all outpaced their respective consensus estimates by decent margins. The raft of positive data started with building approvals for April which rose 3% (exp. -3%), whilst the Q1 net export contribution jumped 1.1% from the quarter prior. Private sector credit numbers marginally beat their estimate, although it was yesterday’s Q1 GDP numbers which topped 3% on an annualized basis that drove buyer’s appetite. Other data of less impact included the Q1 current account which improved from the quarter prior, although the data failed to match the expected improvement and included a negative revision to the previous data. Monday’s numbers included falling Q1 company profits and a decline in the latest HIA new home sales. Focus from here will now turn to today’s April trade and retail sales numbers before shifting to tomorrow’s important US non-farm payrolls employment release.

New Zealand
The NZD has staged a strong turnaround in trade against the USD this week. Firm local data has helped the rally, but much of the advance can put down to the association with the AUD which has staged its strongest rally in a number of weeks. The move higher started on Tuesday after the surge in the latest ANZ business confidence indicator which saw a net 11% of firms surveyed in May being upbeat about the economy’s prospects for the year ahead (up from 6% prior). The construction sector drove the result (29% were confident) and comes as little surprise given the current house price boom, (latest QV house prices +12.4% y/y for May) and strong migration levels. The data came hot on the heels of strong NZ building consents numbers for April and was followed shortly after by data out of Australia which also showed a large lift in building approvals and Q1 net exports which easily beat the expectations. The latter outcome drove expectations for yesterday’s Australian Q1 GDP data higher which ended up easily beating the consensus. NZ terms of trade data earlier in the day for Q1 also beat expectations as both falling import prices and a surprisingly flat result for export prices drove the print. The overnight release in the latest of the GDT dairy trade auctions saw prices lift 3.4%. Focus for the remainder of the week will now turn to US data and most importantly the non-farm payrolls employment report on Friday.

United States
The USD is drifting in trade this week on the back of mixed US data leads which have come ahead of tomorrow’s key data on the labour market. Releases this week started with the PCE price deflator and personal income numbers which matched expectations, and a spike in personal spending which beat the consensus. The increase in spending was the most since 2009 and flags pressure from rising wages and a tightening labour market. The Chicago PMI fell into contraction territory in May, whilst the Dallas Fed manufacturing outlook survey also disappointed. CB consumer confidence numbers were weak, although the ISM manufacturing PMI indicator for May beat expectations as it rose from the month prior. The Fed’s Beige book was a non-event as it flagged “modest” economic growth across much of the US. Market reaction to the data has been understandably muted ahead of employment indicators due prior to the week’s end. These indicators include ADP employment and jobless claims later today and the key May non-farm payrolls release tomorrow.

United Kingdom
Volatility in the GBP has been high this week and comes as the market continues to grapple with the outcome of the EU referendum in three weeks. The heavy falls this week come on the back of polls from the Guardian on the subject. The poll showed 45% supporting leaving the EU, 42% favouring remaining and 13% still undecided. The poll counters those of recent weeks which favoured the UK remaining and shows that the risk of a British exit can’t be discounted, which has the market on tender hooks leading into the vote. Data considerations have taken a back seat this week and should continue to do so over the coming weeks when fresh information on voter preferences becomes available. Data released so far has included nationwide house prices which printed largely in line with expectations, mortgage lending and approvals numbers which missed their target and fell markedly from the month prior, and manufacturing PMI numbers which edged into expansionary territory. Construction and services PMI prints will come later this week ,although expect attention to remain on Brexit headlines and the US data on Friday.

Trade in the Euro has been muted this week as the market awaits tonight’s ECB central bank meeting and key US labour market numbers tomorrow. Data releases of any importance have also been relatively sparse. Numbers so far have included German inflation and EU confidence reads that printed slightly above expectations. Latest unemployment data out of Germany showed unemployment falling to its lowest level since reunification (2.695M) and annual retail sales beating expectations by lifting 2.3% y/y. May preliminary inflation numbers for the euro-zone which were in deflationary territory matched the consensus, although the core number lifted slightly to 0.8% y/y. Manufacturing PMI data released overnight was on consensus across the euro-zone. Across the key countries we saw the both the Italian and German prints fall as they failed to meet the consensus. Whilst the French print managed to edge up, it continues to lag its German and Italian counterparts as it remains well in contraction territory. Focus for now will turn to the ECB meeting later today where the market expects no change in policy ahead of the implementation of further ECB targeted policy accommodation measures (already announced but yet to be started) which are aimed at returning euro-zone inflation towards 2%.

Trade in Japan this week has been quiet and has been dominated by headlines from PM Abe who said on Wednesday that he was planning to delay a scheduled sales tax by 2.5 years and “mobilize fiscal policy to achieve strong growth”. These moves show the concern over the ongoing weakness in the economy. Data releases during the week included retail sales which fell less than that expected. Household spending and industrial production both easily beat their estimates, whilst the latest unemployment numbers remained unchanged at 3.2%. Housing starts numbers which were strong backed up March’s solid rise, although construction orders were seen falling sharply from the month prior. Capital spending gains for Q1 dropped by half from the quarter prior although beat their estimate. Manufacturing PMI data released yesterday ticked up marginally although remains weak and in contraction territory. Remaining local indicators this week are low weight which means focus will be primarily on the USD and US data which will be dominated by the non-farm employment numbers late tomorrow.

Trade in the CAD remains quiet this week. Data so far has been dominated by the GDP release for March which eased from the month prior. The Q1 data jumped from the prior period, although downwards revisions to the previous period’s data and a miss on the consensus dampened the result. Oil prices have drifted in recent hours ahead of any announcement out of the OPEC oil producer meeting in Vienna. The meeting isn’t expected to yield any result on a deal to ease crude production. Other economic numbers released so far this week have included the Q1 current account which matched expectations ,and producer price data which missed their estimate. RBC Manufacturing PMI numbers for May released overnight eased marginally from the month prior ,although remain in expansionary territory. Focus for the remainder of the week will now turn to tomorrow’s Canadian trade and labour productivity data and the simultaneous release of the US employment numbers.