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Economies of Note - 7th November

Written by Ian Dobbs on November 7th, 2014.      0 comments

The past week has seen some mixed data from Australia, along with the RBA rate statement that was little changed from the previous one. Building approval and the trade balance were both softer than expected, while retail sales and employment change both came in stronger than forecast. However, the positive impact of the employment number was dented by revisions to prior data released by the Australian Bureau of Statistics earlier in the week. They revised away around 35,000 jobs for the period of August and September and this took the unemployment rate up to 6.2% from 6.1%. For the record, the most recent data showed Australia gained 24.1k jobs in October, versus expectation of around 20k, with the unemployment rate steady at 6.2%. The RBA remain firmly in the neutral camp, believing continued accommodative monetary policy remain appropriate. The expect inflation to be consistent within the 2-3 per cent target over the next two years. Later today we have the RBA’s quarterly statement on monetary policy which will be closely watched. Next week we have business confidence and consumer sentiment data to digest along with the wage price index, and inflation expectations.

New Zealand
There have been only two releases of note from New Zealand this week. The first was Fonterra’s dairy auction which showed prices continuing to stabilize. The overall index was down just -0.3% from the prior result. On Wednesday we had employment change data and this came in stronger than expected at +0.8%. The unemployment rate also dropped from 5.5% to 5.4%. This was very good data considering the growth in population NZ is seeing with the recent strong migration flows. Wage growth however, remains subdued at only 1.6% for the year, this is a trend that can be seen in many western nations at the moment. Next week we just have the RBNZ’s financial stability report and the Business NZ manufacturing index to draw focus.

United States
It has been an interesting week so far for the United States and we still have the key release of non-farm payrolls to come tonight. Expectations are for a gain of around 230k, but it looks like the risks are skewed to the topside with number of lead indicators are suggesting we could see a very strong employment outcome. The most notable of which was the employment component of Wednesday’s ISM non-manufacturing index. Although the over index came in below forecasts, the employment component jumped to the highest level since 2005. Other data this week included a very solid reading from the ISM manufacturing index, while factory orders and the trade balance were both somewhat weaker than forecast. Financial markets did have a significant reaction to the US midterm elections. Republicans won a majority in both the Senate and the House of Representatives on Wednesday evening, which resulted in decent gains for stocks and the USD.

United Kingdom
This week saw PMI’s for the manufacturing, construction and service sectors released in the UK with mixed results. The manufacturing PMI came in better than forecast at 53.2, which is also stronger than the prior reading of 51.5, but the PMI’s for both the construction and service sectors disappointed coming in below expectation and down on the prior readings. The service sector is the biggest part of the UK economy and slowing growth there means the Bank of England (BOE) will be in no hurry to raise rates, especially considering the recent run of downbeat data They met last night and as expected left policy settings unchanged. We now wait for two weeks to get the minutes to gain further insight into thinking within the Monetary Policy Committee (MPC). The only other data released this week has been manufacturing and industrial production. Market impact from these releases was very muted with improvements in the monthly reading, countered by weaker year on year results.

Data from Europe this week has remained subdued and it has done nothing to improve the current economic outlook. Manufacturing and service sector PMI’s both came in a touch below expectation, while retails sales and German factory orders missed forecasts by a much bigger margin. Reuters released an article this week which got a lot of attention suggesting there were big divisions within the ECB’s governing council and that President Mario Draghi’s leadership may be under threat. It said governing council members had issues with Draghi’s secretiveness and communication style and that he kept aides in the dark on policy steps. This caused some volatility in the Euro as the market weighted up the chance of a less proactive central bank leader. That speculation was largely put to bed last night after the ECB rate meeting and press conference. Draghi moved to quash any hint of divisions within the governing council repeating the word ‘unanimous’ on many occasions when describing council decisions and opinions. The ECB took no further action at this meeting, but Draghi stressed they were all committed to act again if needed, with staff undertaking preparations for extra measures in case they are required. There is growing speculation in the market that we could see further action from the ECB in December and this should keep the Euro under pressure over the coming weeks. The focus next week will be on industrial production numbers along with GDP data from France, Germany, Italy and the Eurozone as a whole. We also have the final reading of inflation to digest.

This week has seen only second tier data released from Japan and it has had little impact. The most notable release was that of average cash earnings which came in just below forecast at +0.8% year on year. That number needs to grow if Japan want’s any sort of sustainable recovery. A report by Japan’s Centre for Economic Research said that real GDP likely fell in September for the time since April. The official numbers aren’t released until Nov 16th, but a negative result doesn’t seem unrealistic. The Bank of Japan (BOJ) released minutes from the Oct 6-7 meeting. These were not from the Oct 30th meeting when the surprise easing was announced, and as such didn’t contain any revelations. The most interesting point was that there was no hint or signal that they might undertake action at the next meeting apart from the much repeated statement that they will “keep easing until 2% inflation is stable”. Next week we have the current account, tertiary industry activity and core machinery orders to look forward to.

Canada posted a surprise trade surplus for September of CAD 710 million, thanks to a jump in exports of 1.1% and a drop in imports of -1.5%. Unfortunately with the recent drop in oil prices, future trade surpluses look very unlikely. Building permits data also came in on the positive side with a jump of +12.7%. Its impact was limited as the previous reading was -27.3%, so it was no major surprise. It is obviously a very volatile series. The other data point released so far this week was last night’s Ivey PMI. This came in at a disappointing 51.2 vs expectation of 59.2. The prior reading was 58.6, so this was a very weak result. All sub components of the index were lower as well. Bank of Canada (BOC) Governor Poloz has been on the wires this week saying the European headwinds are being offset by a tailwind from the US recovery. He believes housing remains the biggest domestic risk to the economy and added rate hikes would have a larger effect than in the past due to household debt levels. Tonight we get key employment data with the market expecting a change in employment of -3.9k and the unemployment rate to hold steady at 6.8%. Next week to draw focus we have housing starts, the new house price index and manufacturing sales data.