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Economies of Note - 30th September

Written by Ian Dobbs on September 30th, 2016.      0 comments

This week has been notable for a lack of fresh local news to drive the AUD so far with the only data due this afternoon. Trade in the local currency has been understandably contained, although some gains were seen against the greenback yesterday on the back of the positive momentum that was enjoyed by the commodity currencies as news emerged of an agreed OPEC oil production cutback at the Algeria producer talks. The surprise news sent the price of crude jumping in trade early yesterday, which in turn saw the AUD rise to .7710 against the USD during Asian trade. Focus to conclude the week will be on today’s August private sector credit data which is forecast to show a 0.5% expansion during the month. HIA new home sales data will also feature, although expect focus to quickly move towards next week’s busy calendar which includes the RBA monetary policy announcement on Tuesday and retail sales numbers on Wednesday.

New Zealand
This week has been particularly lacking in key events to drive the local currency. This has seen the NZD trade in a well contained range against the greenback over the course of the week which so far has also seen the USD trade without conviction. Data of interest has come via the August trade data on Monday. This came in weaker than expected due in part to exports which fell 8.7% on the same month a year earlier, largely thanks to lower sales in the dairy sector. Building consents numbers for August released this morning which fell by 1% m/m was a sharp improvement on last month’s revised 8.1% decline. This afternoon will see the release of the next in the ANZ business confidence series so expect direction to conclude the week to come from offshore. This will also be the case next week with just the Q3 NZIER business confidence survey and GDT dairy price auction of any note.

United States
This week has been notable for relatively subdued volatility in the USD and key data, which has been better than expected. Various Fed speakers have also been on the speech circuit, although their message has been one of a split opinion on the urgency and timing of the next Fed rate hike. Fed Chair Yellen’s comments to the House Financial Panel were in line with those from the recent FOMC meeting. Yellen spoke of strong near full employment, disappointing productivity and overall growth, and a lack of upwards pressure on inflation. Key data this week started with new home sales which fell by less than expected and US consumer confidence which rose to its highest level in nine years. Durable goods orders beat expectations in August (although July’s numbers were revised lower) and the final Q2 headline GDP number was revised higher to 1.4% q/q. Personal consumption numbers remained strong in the quarter and non-residential fixed investment rose 1% in Q2, rebounding strongly from the 3.4% decline in the quarter prior. Initial jobless claims again beat the market expectation, although disappointments did come in the form of worse than expected pending home sales numbers and weak manufacturing reads from the Dallas Fed and Richmond Manufacturing Index. Focus to conclude the week will be on Michigan consumer sentiment indicators and personal spending/PCE data later today.

United Kingdom
A lack of key news has meant that trade in the pound sterling has been constrained this week. In comments to the Scottish press, BoE Governor Carney noted the expectations of a material slowing in the UK economy as a consequence of the decision to leave the EU, although he also pointed to the long-term positives for the economy. Data so far this week has lacked any authority. BBA mortgage approvals largely matched expectations and the CBI Distributive Trades Survey fell well short of its consensus, although the market showed no interest in either release. Mortgage approvals data which last month showed British lenders approving the fewest mortgages in almost two years is a sign that the housing market is continuing to slow in the wake of June’s vote to leave the EU. Other data from the BoE showed that consumers are continuing to borrow and spend heavily as they take advantage of the current record low interest rates, such data will provide a quandary for the central bank as it considers when to next cut rates. Focus for today will be on the UK Q2 GDP and business investment numbers, whilst on Monday we will see the release of the September Manufacturing PMI.

Like the other majors covered in trade this week the Euro has lacked direction. ECB President Draghi was seen talking tough on the subject of UK access to the EU single market during the coming Brexit talks and discussed the impact of low rates on banks. This comes as speculation continues to mount over the health of leading German bank Deutsche. Data released during the week started with the German IFO which was stronger than expected. Euro area economic confidence rose to its highest level since January and German inflation was seen rising to 16-month highs at 0.5% y/y. German unemployment remained unchanged at 6.1%, although the unemployment change underperformed expectations by rising slightly in September. Focus for today will be on the euro area inflation read whilst next week kicks off with manufacturing PMI data on Monday.

There has been little local data to go on for the Japanese Yen in trade this week. Interest earlier in the week was on the July minutes to the BoJ meeting which noted concern over the risk’s to Japan’s economic activity and downside skew to inflation expectations. The minutes suggested that policymakers are looking at modifying the policy framework given the failure of three years of stimulus in boosting price growth. Comments from Governor Kuroda on Monday also highlighted the concern as he noted the lack of bounds on monetary policy and potential to move rates further into negative territory. Data released during the week included today’s disappointing household spending numbers and worse than expected national core inflation print, which again highlighted the problem faced by the central bank. Other items of less interest included weak retails sales and a small rise in unemployment (3.1%). Focus for next week will be on the Tankan survey on Monday, risk sentiment and US data (especially the employment numbers on Friday).

News of a surprise OPEC agreement in Algeria sent oil and the Canadian dollar surging in trade yesterday. The first OPEC deal in eight years saw the member producers agree to limit production in the range of 32.5-33.0 million barrels per day (bpd). The move represents a reduction in production of around 700k bpd based on the current OPEC production estimates. Details of how the cuts will be implemented are due to be decided at OPEC’s formal meeting on November 30th. Further bullish news received by the oil market included a surprise draw in US crude inventories, although the inventory which is in excess of 500M barrels remains extremely high. Other focus will be on today’s July GDP report which is forecast to show a moderation in the pace of growth registered last month. Expect the industrial product and raw materials price data to have a very limited influence at best.