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Economies of Note - 30th October

Written by Ian Dobbs on October 30th, 2014.      0 comments

It has been a very quiet week for data from Australia with nothing of significance released so far. We did get import prices a couple of hours ago and these were softer than expect at -0.8%. The impact on the market from this data however has been negligible. Tomorrow we do get producer prices and private sector credit numbers, while next week’s economic calendar looks a lot healthier. Building approvals, retail sales, the trade balance and employment change are all set for release along with the latest Reserve Bank of Australia rate statement.

New Zealand
The main focus for New Zealand this week was on this morning’s RBNZ rate statement. As expected the central bank left the cash rate unchanged at 3.50%, but a somewhat more neutral tone to the statement saw the New Zealand dollar come under pressure. The central bank acknowledged the recent soft inflation data and dropped the reference to the “need for further policy tightening’s” that was present in the September statement. They also said house price inflation had fallen “significantly” since late-2013, in part thanks to the LVR restrictions. Also, the level of the NZD remains “unjustified and unsustainable”. This was a much more neutral statement than the previous one and as such confirms the growing market expectation that the RBNZ are now on hold until at least late next year. Other data released this week was ANZ business confidence which showed something of a rebound from recent lows, and building consents are due tomorrow. Whilst the business confidence was of interest, it had minimal market impact. Next week we have another global dairy auction result from Fonterra, along with the latest employment numbers.

United States
The week started off with the USD under pressure on the back of some weaker than expected data. Services PMI and pending home sales both missed expectation, but the bigger impact came from durable goods orders. The headline number printed at very soft -1.3% vs expectations for +0.4%. The core reading, which excludes transport items such as aircraft, wasn’t much better, printing at -0.2% vs expectations of +0.5%. Durable goods orders are a proxy for business investment and these were disappointing numbers. The data so far this week hasn’t been all bad however. The Richmond manufacturing index printed at its highest level since 2010, and The Conference Board Consumer Confidence Index jump from 89.0 to 94.5, which is its best level since 2007. The main event of the week was always going to be this mornings Fed rate statement and it didn’t disappoint. It was no surprise the central bank announced the end of quantitative easing (QE), but the tone of the statement was a little more ‘hawkish’ than the market was expecting. The Fed maintained the reference to a “considerable time” between ending QE and hiking rates, but they upgraded their assessment of the labour market saying “conditions improved somewhat further, with solid job gains and a lower unemployment rate”.  The previous statement had suggested “significant underutilization” of labour resources, but this time they said “underutilization of labour resources is gradually diminishing”. They acknowledged recent low inflation suggesting it was largely the result of energy prices and added “the likelihood of inflation running persistently below 2 percent has diminished somewhat”. The USD made good gains across the board on the improved tone of the statement and markets are now starting to think a rate hike mid next year is on the cards. Still to come this week we have the core PCE price index, personal spending and income data along with revised University of Michigan Consumer Sentiment Index. Next week from the US we have key data in the form of ISM manufacturing and non-manufacturing PMI’s, the trade balance and the monthly employment report.

United Kingdom
Tuesday saw the release of the CBI realized sales index which maintained a healthy level of +31. A large 48% of respondents reported sales volume increases in October, with only 17% saying volumes had declined. This helped to ease the pain of the previous weeks retail sales data for September which came in much weaker than forecast. The only other data we have seen this week has been “net lending to individuals” and mortgage approvals, both of which came in a touch below expectations. The BOE’s Cunliffe has been on the wires saying there are grounds to wait for clearer signs in wage growth before raising rates. He added, softening pay and inflation mean the bank should be cautious about tightening policy in the basis of falling employment alone. Understanding how long employment can improve without creating inflation is now key for policy. Tonight we get the Nationwide house price index and next week there is plenty of key data to digest. Manufacturing, construction and service PMI’s are set for release along with the Bank of England (BOE) rate meeting.

It has been a quiet week so far for data from Europe. The ECB bank stress tests released on Sunday didn’t highlight too many concerns and as such the impact on the Euro was limited. Monday’s release of the German IFO business climate index disappointed dropping to 103.2 from 104.7 previously. There was little to cheer about with pessimism growing at the Eurozone’s core. French consumer confidence was also soft printing at 85 vs 86 expected. The key data for the week is released tomorrow evening in the form of inflation. The market is looking for a small improvement to +0.4% y/y from the previous +0.3% reading. With inflation undershooting in many countries recently driven by declining energy prices the risks are there for another softer than expected outcome. Next week there is a raft of second tier data set of release, but the main focus will be on Thursday’s ECB rate meeting and subsequent press conference.

Tuesday saw the release of retail sales and industrial production data from Japan, and both came in better than expected. This will be somewhat pleasing for the Bank of Japan (BOJ), although the economy still has a long way to go to recover from April's sales tax hike. Governor Kuroda himself said this week the economy is showing some weakness in output, although he added a positive cycle remains intact. The IMF aren’t so confident about any positive cycles, with a release this week suggesting Abenomics is failing to turn the Japanese economy around. They say a weaker Yen hasn’t boosted exports and stock market gains haven’t spurred domestic consumption. They added structural reforms have not been strong enough for Japan to break out of a stagnant economy. Tomorrow we get inflation and household spending data along with the BOJ monetary policy statement. Next week there is little to get excited about on the economic calendar, with on the BOJ minutes and average cash earnings of any note.

The only data from Canada this week has been the raw materials price index. This index measures the change in price of raw material purchased by manufacturers and is considered a lead indicator of inflation. The index printed much weaker than expected at -1.8% and suggests there is little in the way of pipeline inflation pressure in the economy at the moment. Bank of Canada (BOC) Governor Poloz released a speech saying monetary policy stimulus remains appropriate. He added Canada still has considerable excess capacity in the economy. Tomorrow we have GDP data to digest and next week the economic calendar is looking very healthy. Governor Poloz speaks again and we also get the trade balance, building permits, Ivey PMI and employment change data.