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Economies of Note - 2nd September

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

The week has been subdued so far in Australia ahead of tonight’s key US employment data. Releases started with data on new home sales for July which declined for the third time on four months. The 9.7% fall in the HIA survey of large-volume builders more than reversed last month’s gain, although on the whole housing activity remains robust (albeit more volatile). Data from the ABS on building approvals for July rose by a very strong 11.3% in the month as surging new apartment plans offset the decline in house approvals and drove the series to its largest rise in 2.5 years. Private sector house approvals edged lower on the month and now sit 3 per cent lower over the year. Private sector credit numbers rose in line with expectations in July, whilst Australia’s housing credit, which expanded .5% during the month, is up 6.6% on those levels from a year ago. Retail sales numbers which were flat on the month prior continued the decelerating trend in monthly retail sales and suggests high levels of debt and concerns over the economy are weighing on consumer optimism. Private capex fell by more than expected in Q2 as mining expenditure again dragged. Investment expectations, which jumped in the latest read, implies a roughly 10% fall in total capital expenditure from last year.
New Zealand
This week has been a relatively quiet one for the local currency ahead of tonight’s key US data from the labour market. Data has come in the form of Building Consents for July which fell 10.5%. This was led by a 11% decline in the number of new homes consented for the month. NZ business confidence was little changed in August from a month earlier according to the ANZ survey and remained solid overall. The most notable change in confidence came from the agricultural sector which improved in part on the back of the recent gains in dairy prices. Terms of trade data for Q2, which were weak, was to be expected given the 7.1% fall in dairy prices in the quarter. The positive in the data was the strong jump in export volume which rose over 10%, more than twice the size of the gain expected. Look for direction to be led by the employment data in the US tonight where presently the market is looking for ~180k gain in August Nonfarm payrolls. Look for a much better than expected print to lift odds on a Fed hike later this month and re-rate the USD higher.
United States
The greenback has continued to hold its gains this week ahead of today’s key US Nonfarm payrolls employment report. Demand has been supported by the recent comments (including those at the weekend at Jackson Hole) which have lent support to the theme of an earlier than previously expected rate Fed rate hike. Comments this week included ones (again) from the Fed’s Fischer which noted the US at near full employment despite the stronger USD. Data released during the week started with numbers on personal income and spending which pointed to positive momentum in Q3 and consumer confidence which moved notably higher in August. Detail in the latter release points to consumption being an important contributor to growth in 2017. Data on pending home sales showed better than expected growth in July, whilst the latest Chicago PMI indicator of manufacturing activity disappointed as both production and new orders fell. Further data from the manufacturing sector released overnight also disappointed after the ISM report fell well short of expectations as new orders showed particular weakness, although the manufacturing PMI indicator at 52 was only slightly below the consensus.

United Kingdom
Events in the UK this week have so far been dominated by news of the last 24 hours. This included news of the largest month-on-month rise in UK manufacturing activity seen in 25 years. The August data came as production and new orders surged following the initial shock of the Brexit vote. Overseas orders were helped by the weaker GBP, although domestic output also recovered. Comments from the IMF helped the strong GBP sentiment and came as they spoke of the surprising UK growth in the run-up to the referendum, the subsiding turmoil seen in financial markets, and measures taken by the BoE which would boost growth and support the economy. Other data this week included weaker than expected numbers on mortgage lending, lending to individuals and mortgage approvals, which fell to 18-month lows in July. Nationwide house price data posted a 0.6% gain in August despite the Brexit vote, although weak housing market activity points to a clouded outlook ahead. Focus to conclude the week will be on today’s UK construction PMI release and later US employment data.
External events have dominated trade in the single currency this week in the wake of last weekend’s meeting of economic and central bank leaders at Jackson Hole. Initial trade reflected the stronger USD as expectations for a US rate hike as early as this month grew after the commentary from senior Fed officials. Recent trade has seen the Euro recover on the back of weaker than expected US data, supportive data from the UK, and IMF commentary which pointed to a reduced impact of the recent UK EU exit vote. Local data included weaker than expected German inflation numbers which highlight the difficult task ahead for the ECB and business climate/consumer confidence data that remained weak. Inflation data for the euro area reflected the weak earlier German numbers as both the headline and core numbers undershot their expectations. Manufacturing PMI indicators were mixed as the theme of solid German activity was once again negatively influenced by weaker French and Italian reads in the overall euro area data. Look for focus to conclude this week in the US as the market awaits the key Nonfarm payrolls employment report.
The Yen has continued to ease against the greenback this week in the wake of the Jackson Hole meeting. This coupled with hawkish USD commentary from Fed leaders has placed heightened importance on today’s US employment data as a harbinger on the timing of the next move in US rates. Governor Kuroda’s comments at the meeting has also contributed to the weaker Yen sentiment this week and came as he spoke of an interest in boosting the multi-dimensional stimulus if required. Data out of Japan began the week with numbers on household spending, retail sales and unemployment which all beat their expectations. Industrial production numbers, which were flat in July, disappointed and were accompanied by a sharp decline in construction orders. Housing starts were seen rising above expectations whilst the June quarter survey of capital investment by companies showed an easing from the prior period in a continuation of the trend seen since Q3 2015. Look for the week to finish with a US focus today as we wait for the key employment data due overnight.

Oil prices which have extended their losses and data which showed the Canadian economy shrinking in the second quarter by its largest amount since Q2 2009 have placed the local currency under pressure against the greenback in trade this week. Oil prices fell again overnight on the back of supply data which showed a surprisingly large build in US crude and distillate stockpiles and a smaller than expected draw in gasoline. Prices have now fallen around 10% in the last week. Local economic data was led by a rebound in growth in June on the back of resumption in oil sands production, although the 1.6% contraction in Q2 follows the 2.5% growth of Q1 (annualized). Data on raw material prices for July was worse than expected. The Q2 current account was slightly better than expected, albeit remains at levels which have never recovered from the GFC. The data included a goods trade deficit which has hit a new record as non-commodity exports continued to fail to pick up the slack for the decline in commodity exports. In focus today is local numbers on trade and labour productivity, although expect the US employment data to garner the market’s focus.