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Economies of Note - 6th November

Written by Edited by Ian Dobbs on November 6th, 2015.      0 comments

The RBA interest rate decision on Tuesday dominated sentiment towards the AUD this week. The RBA left the rates on hold at 2.0% (against the predictions of many), although moved to an easing bias after noting in their statement that the “outlook for inflation may afford scope for further easing of policy”. The RBA commented that the prospects for an improvement in economic conditions had firmed a little and that leaving the cash rate unchanged was appropriate. Data releases on Monday showed a sharp improvement in Australian building approvals for September, whilst Chinese manufacturing PMI data showed conditions that remained below the 50.0 expansionary level for the third month in a row. Australian Retail Sales data for September released on Wednesday met expectations rising 0.4% m/m. The September trade deficit was seen narrowing to $A2.317 Bn from the revised $A2.711 Bn number the month prior. The market now keenly awaits the RBA minutes this afternoon in order to garner additional insight into Tuesday’s cash rate decision. Next week will see the release of the key October employment report on Thursday.

New Zealand
The NZD had a poor week sliding significantly after the latest GDT dairy auction and unemployment report on Wednesday morning. The latest dairy auction saw the GDT-TWI fall 7.4%, this was promptly followed by a sharp fall during the day in the NZX futures pricing of ~ 10% for the next contracts. Improving milk production levels and data which points to Chinese demand in 2015 significantly lagging last year’s levels has increased market speculation of increasing inventory levels going forward. NZ unemployment data for Q3 released the same day placed additional pressure on the local currency after the number of people employed dropped by 11,000 in the three months to September, against expectations of a 10,000 gain. The unemployment rate rose to 6.0% (from 5.9%), the September quarter was the first time employment across the entire economy had dropped in three years. The rate now sits 0.6% above the 5.4% low seen 12 months ago. New jobs growth has fallen behind the expansion of growth in the workforce as record migration numbers sees the working age population growing at a faster rate. Wednesdays data would have been even worse had the numbers actively seeking work not declined by 8,000 (the participation rate dropped to 68.6% from 69.3%). Offshore drivers are likely to dominate next week in what is a quiet week locally for data.

United States
The key focus for USD this week will be tonight’s release of the October Nonfarm Payrolls report. Consensus expectations are for a 182k gain in jobs. Investors will be looking for clues as to whether the Fed will raise interest rates in December, a possibility of which the Fed Chair Janet Yellen again alluded to this week. Market pricing presently puts the chance of a Fed rate hike this year at over 50%. The U.S. ADP employment report gave little additional insight into tonight’s payroll’s number after it printed broadly in line with expectations, rising 182k in October. Weekly initial jobless claims were higher than expected rising to 276k (264K exp.) although the overall level remains low and points to solid nonfarm payrolls growth tonight. The ISM manufacturing survey released on Tuesday printed broadly in line with market expectations, although the non-manufacturing survey was much stronger than expected increasing to 59.1 in October from 56.9. The details of the survey showed strong gains in new orders and employment. Next week will see a raft of largely second tier U.S. data which should not influence the Fed thinking, although Friday’s October Retail Sales report will be of interest to many.

United Kingdom
The overnight BoE meeting was the primary focus for the U.K. this week. The BoE kept its cash rate on hold at 0.5% as expected. The GBP came under heavy selling pressure after the BoE down-graded its near-term inflation forecasts citing continued weakness in oil prices, weaker global growth projections, and the still elevated level of the currency. Inflation was seen remaining below 1% until  H2 2016. The bank also noted risks to the forecasts were to the downside. Data released on Monday showed U.K. Manufacturing PMI rising to its highest level since June 2014 in October on the back of firm export orders. October Construction PMI data released the following day was also strong at 58.8 (on exp.) and showed that activity remains firmly in expansionary territory. Services PMI data released on Wednesday at 54.9 beat the 54.5 expectations, and was up from 53.3 the month prior. The week ahead will be dominated by the U.K. October employment data on Wednesday and the inflation report hearings the day prior. Tonight’s Manufacturing and Industrial Production data will also be of interest.

The Euro continued to be under pressure this week as investors focused on the diverging monetary policy expectations between the U.S. Fed and the ECB. Comments from ECB President Draghi overnight noted that whilst the ECB’s current Asset Purchase Programme (APP) has been effective the ECB must also consider whether the current format will be effective in returning price stability over the medium term, given the headwinds presented by a weakening world economy. Euro-zone inflation data released on Friday (flat y/y) shows that inflation still remains dormant and far from the ECB’s 2% target, expanded stimulus remains a very real possibility before year end. Data flow was mixed this week, the final euro zone area manufacturing PMI was upgraded modestly to 52.3, whilst at 53.9 the euro zone Markit composite PMI fell just shy of the 54.0 expectations. German factory orders fell 1.7% m/m in September, a marginal improvement from the month prior (-1.8%), although well short of the 1.0% rise expected. Next week will see the release of a raft of largely second tier data before more important GDP data on Friday.

It has been a quiet week for dataflow in Japan this week. The monetary policy meeting minutes which accompany last week’s BOJ meeting was the key event of note. The board noted in the minutes concern over the drop in crude oil prices and the impact it would have on delaying the 2% inflation target. The BOJ pointed the finger at firms for the slow rise in wages during a period of record profits. Last week’s BOJ meeting saw the BOJ reduce their inflation and growth projections and leave its stimulus program unchanged. The only data of note this week was the release of the October Manufacturing PMI data on Monday which showed growth in production increasing to its fastest rate since February (52.4) and new orders increased at their fastest rate in a year. Next week will see the release of Trade data on Tuesday, Machinery orders data on Thursday and Industrial Production/Capacity Utilization data on Friday.

The CAD has eased moderately this week after oil prices fall at the back-end of the week. Prices were not helped by data which showed rising supplies in the U.S. and inventories which gained for the sixth straight week. The RBC October Manufacturing PMI data released on Tuesday showed a fall to 48.0 from 48.6 the month prior. The Canadian Ivey purchasing managers index released overnight grew at a slower rate than expected in October and underlines concern over the health of the economy (53.1 vs. 54.0 exp., 53.7 prior). Data from last week showed Canadian August GDP rising 0.1% m/m, in line with market expectations. Immediate focus now turns to tonight’s employment data, market forecasts centre on a steady 7.1% Canadian unemployment rate and the gain of 10k jobs in October.