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Economies of Note - 4th December

Written by Edited by Ian Dobbs on December 4th, 2015.      0 comments

The AUD is trading firmly today after having posted solid gains during the week on the back of largely better than expected local data and an overall weaker USD. Australian private sector credit and Q3 company profit data released on Monday both exceeded expectations. However, both took a back seat to the key RBA cash rate announcement and Q3 GDP data released later in the week. The RBA kept the cash rate unchanged at 2.0% on Tuesday. This was unanimously expected, and they noted an improved economy whilst leaving the door open for further easing should it be required.  Worse than expected Q3 current account data released the same day failed to make an impression. Q3 GDP data released on Wednesday exceeded market expectations rising 0.9%, the data was helped by strong export numbers. Some gloss was taken off the release by the declines observed in business investment and domestic demand. A deterioration in the October trade balance data seen yesterday has failed to elicit any excitement. Immediate focus for the AUD now turns to retail sales data this afternoon before the release of U.S. employment data later today and Australian employment data next Thursday.

New Zealand
The NZD has had a solid week after breaking through the upper end (.6600) of its recent trading range mid week. This break came on the back of broad based USD weakness. This was in part induced by the release of weaker than expected ISM manufacturing data ,which fell to levels not seen since 2009. ANZ business confidence and October building consent data released at the start of the week both surpassed expectations, and this helped the NZD start the week on a solid footing. The latest GDT dairy auction saw a lift of 3.6% in the GDT-TWI index which was marginally less than expectations. The 3.7% decline in the NZ Q3 terms of trade and weaker than expected building volume data failed to dent the firm trading tone. The NZD has finished the week strongly after the Euro soared. This came as extended “short EUR positioning” was covered after the ECB delivered an underwhelming stimulus expansion package in trade overnight. Next week’s focus will turn to the RBNZ cash rate announcement on Thursday. The market is evenly balanced on the prospect of a cut to the current 2.75% cash rate. in the meantime the immediate attention for today will be tonight’s U.S. employment data release.

United States
The USD has had a poor finish to the week after it dropped ~2.8% (DXY index) in trade overnight. The losses occurred after weaker U.S. data and extended long USD positioning combined with a stimulus expansion package from the ECB which failed to satiate the market’s expectations. U.S. non-manufacturing data released overnight, whilst still indicative of a solid pace in activity in the non-manufacturing sector, failed to meet the market’s lofty expectations. Earlier in the week the manufacturing print missed expectations by a large margin, falling to levels not seen since 2009. Fed chair Janet Yellen’s comments during the week maintained the expectations for a Fed lift-off on December 17. She raised concerns over potential delays in rate hikes contributing to more abrupt tightening down the track if Fed targets are overshot. Further data misses included a disappointment in the Chicago PMI and pending home sales data. The ADP jobs report, NY ISM and factory orders releases all exceeded expectations however. Focus now turns to the November non-farm payrolls employment report tonight, market consensus is for a gain of 200k jobs and steady 5.0% unemployment rate.

United Kingdom
The GBP has experienced a strong finish to the week (after earlier losses), mostly on the back of the plunge seen in the USD and strong ECB inspired EUR rally. U.K. data released overnight also helped after the services PMI was seen exceeding expectations. Earlier week mortgage approvals data for October improved on the month prior, whilst M4 money supply and lending secured against dwellings continued to show strong gains. The easing seen in the manufacturing PMI on the month prior reflected the weak global manufacturing environment experienced currently by many countries abroad, although the relative strength of the GBP was also seen to be impacting. Immediate outlook for the GBP will come from the U.S. employment data tonight, attention will then turn to next week’s BOE interest rate decision next Thursday.

The Euro has risen dramatically in trade overnight after extended “Euro short positioning” was seen covering post the ECB monetary policy meeting. Expectations of an expansion in the size of the current EUR 60Bn monthly bond buying programme to around EUR 75Bn per month failed to materialize. The ECB instead opted for an extension of the programme by 6 months (to March 2017) and widening of the pool of bonds that they would purchase to include regional and local bonds. The deposit rate was cut to -0.3% (from -0.2%), although analysts had expected a deeper cut to -0.4%. Data releases this week took a back seat to the overnight meeting. German inflation data was seen printing on expectations, whilst mild improvements were noted in euro area activity and labour market data. The German unemployment rate declined to a new low of 6.3%, whilst the euro area core inflation rate missed expectations by declining to just 0.9% y/y in November. U.S. employment data tonight now provides the immediate focus. Releases next week include German and French inflation and trade prints.

The JPY has taken a back seat this week to the movements in the Euro and USD as the raft of second tier data releases out of Japan failed to provide any real impetus. The major move this week for the Yen has come overnight which occurred after the USD index fell ~ 2.8%. USD losses were largely made on the back of Euro gains post the delivery of an underwhelming stimulus package by the ECB. Local releases included weak housing starts and the lower than expected industrial production data releases on Monday. Retail sales data released the same day exceeded expectations, whilst the Nikkei Services PMI release yesterday deteriorated from the month prior. Focus will now turn to the U.S. employment data tonight and the Japanese Q3 GDP release next Wednesday.

The CAD has stayed relatively well contained this week despite a raft of OPEC oil related headlights and local data releases. Moderate weakness was seen after the Q3 GDP release. The quarterly data met expectations, although the monthly 0.5% decline provided a negative surprise and was led by a contraction in oil and gas activities. The BOC left interest rates unchanged at 0.5% as expected and cited growth dynamics which were broadly in line with their October outlook. The RBC Manufacturing PMI improved from the month prior, but failed to provide much excitement. Focus from here will turn to the release of tonight’s Canadian and U.S. employment data, the Ivey PMI and any further headlines from the OPEC meeting.