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Economies of Note - 3rd November

Written by Ian Dobbs on November 3rd, 2016.      0 comments

It has been a relatively quiet week for the Australian dollar this week after the both the RBA and US Fed did little to surprise the market at their respective monetary policy announcements. The RBA’s neutral policy statement did little to change expectations of a rate cut down the track. Governor Lowe indicated he was happy to keep rates on hold for an extended period, in the process noting rising prices in some markets (housing) and unemployment as an indicator of slack in the economy. Data released this week started with numbers on private sector credit which matched expectations and commodity prices which showed a strong gain in the latest monthly read. The AIG manufacturing index rose into expansionary territory in October and was driven by stronger growth in exports, sales and new orders. Focus for the remainder of the week includes today’s trade data and the RBA monetary policy statement (MPS)/retail sales tomorrow.

New Zealand
The local currency has been in strong demand this week on the back of yesterday’s bumper third quarter employment data which saw the unemployment rate drop to its lowest in almost 8 years. The 4.9% rate was 0.2% better than expectations and came as the economy created more than 10k new jobs for the month, although population growth meant that growth in wages remains low. The other key event was a strong GDT dairy auction result which rose 11.4% overall. It included a 20% gain in the key whole milk powder price (WMP) which was helped by reduced local supply. Other news during the week was a small gain in building consents in September and a solid ANZ business confidence read which eased moderately from the month prior. Inflation expectations improved slightly but remain low at 1.7%.

United States
The greenback has been on the back foot during trade this week. Focus was on this morning’s FOMC decision which saw the Fed leave rates on hold which was in line with market expectations ahead of next week’s presidential election. The Fed noted that the case for a hike had strengthened, although continued to await further evidence on its objectives (of maximum employment and 2% inflation) which barring unforeseen circumstances should lead to a hike in December. Other focus has been on the closing gap in the US presidential election race between Clinton and Trump which has seen the RealClearPolitics average of polls reduce to a 1.7% gap (only) in favour of Clinton. Data this week started with numbers on personal spending and personal consumption expenditure that was in line with expectations. The October manufacturing ISM lifted slightly to 51.9, highlights were a decline in new orders and a rise in employment. ADP employment increased by 147k only (less than expectations), although should do little to change expectations on tomorrow’s Nonfarm payrolls employment (+175k exp.). Other focus will be on the earnings growth indicators and today’s PMI numbers (led by the Non-Manufacturing ISM).

United Kingdom
The sterling has had a relatively quiet week so far in the lead-up to today’s BoE monetary policy meeting. Mortgage approvals, which lifted above expectations and consumer lending. which rose by 1.4B pounds in September had no impact on trade. The latest manufacturing PMI data eased from the month prior in a number that was marginally below consensus expectations. The reduction reflected an easing in export orders growth as the weaker pound saw input costs rises to 5 ¾ year highs. The construction PMI read lifted to seven month highs (beating expectations) on the back of rising home building, although slowing forward orders and rising prices for building materials suggest difficulty ahead. House prices which failed to lift in October ended a run of 15 consecutive monthly gains. The weaker than expected read saw annual growth fall to 4.6% which was the slowest annual pace since January. In focus to end the week is today’s BoE monetary policy announcement (no change expected), the BoE inflation report and the services PMI.

This week has been a relatively uneventful one for market moving news out of Europe which has seen the Euro gain on the back of a retreat in the USD. Data releases included weak latest monthly German retail sale numbers and on consensus reads for both the eurozone Q3 GDP and October inflation. Manufacturing PMI data rose moderately across the eurozone in October, whilst on a regional basis the strongest reads came from Spain and France. The German unemployment rate was seen falling further to 6% as unemployment fell by more than expected during the latest month. Focus for the balance of the week will be on tomorrow’s US data (led by employment) whilst in Europe services and composite PMI reads may create some interest.

Attention this week in Japan was on Tuesday’s Bank of Japan (BoJ) announcement which saw the BoJ leave policy unchanged and reduce its inflation forecasts. The bank indicated a desire to maintain “momentum” towards its 2% inflation target (a less clear goal which indicates a reduced likelihood of action in coming months) and acknowledged it had fallen further behind in its timeline to achieve the target. The bank pushed its forecast of achieving the inflation goal out by a year to March 2019. Data this week started with industrial production numbers which flat-lined on soft private consumption and overseas demand. Retail sales and household confidence disappointed, although positives came from the latest housing start and construction orders data. Focus for the balance of the week will be on tomorrow’s US data which is led by the key October employment indicators.

Continued pressure on the price of oil has once again been the driver of CAD sentiment in trade this week. Prices fell further to lows around $45 WTI a barrel in trade overnight on the back of news of a large unexpected rise in US crude stocks that showed the largest weekly gain since at least 1984. Local news included August GDP data which matched expectations, although July’s numbers were revised marginally lower. The RBC Manufacturing PMI indicator lifted in October and the latest read on industrial product prices showed a larger than expected increase (although raw material prices were weak). Comments from BoC Governor Poloz were on the dovish side but had little impact. Event focus for the balance of the week will now turn to tomorrow’s Canadian and US employment numbers and the Ivey PMI/trade data (much less so).