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Economies of note : 20 June 2014

Written by Sam Coxhead on June 20th, 2014.      0 comments

2:15 PM (NZT) 
The focus this week for the Australian economy has been the minutes released by the RBA from their previous monetary policy meeting. If anything the minutes revealed a slightly more “dovish” tone, with questions over whether or not the low current cash rate would be enough to offset the negative effects  of substantial expected decline in mining investment and  planned fiscal consolidation. They continue to point out that the AUD was high by historic standards,”particularly given the further decline in the commodity prices over the last month”. Obviously this meeting happened prior to the better than expected GDP numbers, albeit these are expected to settle down to below the long term trend in the coming quarters. Next week is a very quiet one for economic news in Australia, but the latest manufacturing numbers from China will be closely watched.

New Zealand
 This week started positively for the NZ economy with the Westpac consumer sentiment survey revealing that sentiment remains at very solid levels, albeit back slightly from the previous month. Of note to the RBNZ will be the 1.2 decline in the national house price index, as reported from the Real Estate Institute of New Zealand. The primary focus came from yesterdays first quarter GDP numbers. These came in slightly below expectation at 1.0%, with the previous quarter being revised up .1% to 1.0%. Whilst below expectation this number is solid and is the strongest March year growth rate at 3.3% since 2006. Construction lead the growth, up 12.5% on the quarter, the largest increase in 14 years. On balance these numbers are more or less aligned with the RBNZ forecasts. The market was obviously looking for a number above forecast, as following the announcement the NZ dollar fell across the board, albeit from post float highs on a trade weighted basis of 81.20. Next week is a fairly light economic calendar in NZ, with just visitor arrivals and credit card spending data on Monday, followed by the trade balance on Friday.

United States
The outlook in the United States remains patchy from economic evidence this week. The National Housing Market Index showed less negative sentiment than the month previous, but building permit numbers we below forecast levels. Interestingly the inflation numbers were a touch higher than expected and this was further evidenced in the Feds updated forecasts which were included in their monetary policy announcement on Wednesday. They continued their tapering process as expected, but reduced near term growth expectations. Interestingly, in response to a faster falling unemployment rate than expected, the projected pace of policy tightening in 2015 and 2016 was increased. To complicate matters, whilst the pace was increased, the extent was decreased and this had the overall effect on the market of weakening the US dollar further and boosting asset prices (along with the Australia and NZ dollars). Overnight the latest Philadelphia Fed manufacturing Index results surprised to the upside, coming out at 17.8 vs an expectation of a 14.3 result.  Next week home sales, consumer confidence, durable goods sales and final GDP numbers provide the focus.

 On Monday we saw the European year on year inflation number come out on expectation at .7%. The primary concern at the ECB is that price erosion will take hold and stall the economy further. A .7% number is about as low as they would like to see it, and the reason why they are taking extraordinary steps to stimulate economic activity. The latest economic sentiment numbers from economic linchpin Germany did not make good reading. Sentiment continues to grind lower for the sixth month running and was again well below the expected 35.2 level, coming in at 29.8. Later on today we get the latest current account and consumer confidence number to digest. Next week  the respective manufacturing numbers will be closely watched, as will the numerous bond auctions.

United Kingdom
 It has been an interesting week for news in the UK economy. The latest house price numbers show a year on year increase of 9.9% and this will be of particular note at the Bank of England (BOE). Countering the house price appreciation was the general inflation number that tempered to 1.5%  from the previous 1.8% level and below the expected 1.7% mark. Overnight the retail sales numbers were as expected at -.5% for the month as seasonal trends see lower levels of activity. However, the primary focus has been the release of the BOE monetary policy meeting minutes. These gave the most recent glimpse of the feeling on the monetary policy committee, and given the recent comments from BOE officials, were closely watched. The minutes confirm that a rate hike is approaching, but is not imminent. Concern remains about slack in the labour market, and how quickly that slack will take to be absorbed. As yet the pressure in the labour market has not fed through into actual wage growth or inflation. The Committee obviously see the recovery now as as being broad based and sustainable. The interest rate market now prices a 75% chance of hike to the cash rate in December. This kind of expectation should underpin demand for the GBP in the coming months.

 It has been a relatively quiet one for economic news in Japan this week. The BOJ’s monetary policy meeting minutes revealed little new insight, and offer little chance of near term change in aggressive stimulus policy currently in place. The trade deficit came in lower than expected at .86 trillion YEN, albeit of little impact on market pricing. In  parliament BOJ Governor Kuroda predictably stated that the BOJ were moving smoothly towards their 2% inflation target, albeit they are just half way there at this time as policies have the intended effect. Concern remains over the bond market and the impact of the bond buys on the market mechanics. Next week sees a flurry of economic indicators set for release. The latest manufacturing, household spending, inflation, employment and retail sales numbers will all be closely watched. Expect impact on the YEN to be limited as the current period of low levels of volatility continues.

It has been a relatively positive week for the Canadian economy so far. Wholesale Sales numbers were materially stronger than expected at 1.2% (.3% expected) and were further boosted by an upward revision of the previous months number. Adding to sentiment overnight was the release of the semi-annual export index that showed a jump to three year highs as exporters see the US economy as much stronger than six months previous. Later on today the latest retail sales and inflation numbers will come to light, with expectations for a .4% and .2% numbers respectively. Next week sees the focus provided by external data with little in the way of top tier economic news due for release.