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Economies of note : 27 June 2014

Written by Sam Coxhead on June 27th, 2014.      0 comments

1:45 PM (NZT)
Australia
There has been little in the way of domestic economic news in Australia this week. In a note to clients Citibank analysts have increased their expectation for GDP growth in 2014 from 2.9% to 3.4%. Of indirect impact were Monday’s HSBC Chinese manufacturing numbers that showed the first growth in six months. Looking forward to next week we have the Reserve Bank of Australia (RBA) monetary policy decision as a primary focus on Tuesday, ahead of retail sales and building approvals data on Thursday.

New Zealand
Very much second tier data early this week saw increased credit card spending numbers countered by lower than expected visitor arrival statistics. Early this morning the latest trade balance numbers revealed mildly better than expected export numbers and a May Trade Balance of 285m, versus the expectation of a 250m number. The NZ dollar saw a material boost from the weak US final Q1 GDP numbers, this saw a host of “stop-loss” buy orders triggered in the NZDUSD pairing feed through to broad NZ dollar strength. On a trade weighted index basis (against the basket of major trading partners), the New Zealand dollar hit a post float high around 81.50. With the NZ dollar at such elevated levels, there will be a level of impact not only on export earnings, but also tradable inflation. These effects lower the pressure on the RBNZ to hike to the cash rate, or on the extent of the hikes.

United States
The more positive run of US economic data came to a fairly unceremonious end on Wednesday. The final Q1 GDP numbers saw a larger than expected contraction in growth of 2.9% (vs an expected -1.9% number). These coupled with a materially weaker than expected durable goods sales data, to push both interest rates, and in turn the US dollar, lower. Early numbers in the week saw reasonable results from consumer confidence and new homes sales. Next week sees further regional manufacturing data provide some focus ahead of the all important employment numbers on Friday. The market expects to see continuous ground made in the labour market, and at some stage average hourly earnings start to increase as a result of the ebbing slack. Earnings growth is the crucial missing element in the recovery so far, and an eventual move back towards price stability circa 2%.

United Kingdom
It has been a relatively quiet week for news in the UK. Of primary note has been the announcement from the Bank of England (BOE) that it will cap limits on banks for lending on housing. Whilst the new lending limits will not materially impact in the current market, if further rapid price appreciation occurs, they will have an impact. No more than 15% of residential lending will be available for borrowing more than 4.5 times their income. These lending to income ratios would impact the more buoyant markets of London and the south east, as an intended consequence. Later today the current account and final GDP numbers will round out the week. Next week sees the monthly manufacturing, services and construction numbers realised and these will be closely monitored.

Europe
The European wide manufacturing and services numbers early this week both underperformed expectations. The concerning news was the drag that came from the important core economies of Germany and France, as much as the smaller southern members. One interesting statistic that came to light were stronger than expected consumer spending numbers in Germany, as the positive impacts of very low interest rates start to emerge. European Central Bank (ECB) sources this week have not discounted a further lowering of rates, albeit the effects of the current policy accommodation will likely be left to feed through into 2015. Inflation numbers out later on today and early next week will be closely watched, with price appreciation having been at dangerously low levels for a period already. Also next week we get the latest employment numbers Tuesday, and ECB monetary policy statement late Thursday. Obviously no policy change is expected from the ECB, but rhetoric will be closely followed.


Japan
Since Bank of Japan (BOJ) Governors Kuroda’s stock standard comments earlier in the week, there has been a vacuum for news in the Japanese economy. Household spending, Tokyo inflation and retail sales numbers later on today offer further insight after a quiet week.  Interestingly of a Reuters poll of 29 economists, 20 of them saw the BOJ offering further stimulatory policy in 2014, with the majority picking the Oct 14th meeting. Goldman Sachs also reiterated their forecast for USDJPY to be at 110.00 in 12 months, so 7.5% from the current levels. Next week sees the quarterly “Tankan” survey results from the BOJ. This survey of 1200 large manufacturers offers very good insight into the relative level of general business conditions and offers the primary focus for the week.

Canada
There has been very little news for the Canadian economy this week. Given the materially better than expected data at the end of the last week, the CAD has seen solid demand on most pairings. Next week sees the monthly GDP numbers become the focus on Tuesday and these are followed by the trade balance data on Thursday. Sentiment towards the Canadian dollar seems to have turned a little. Further positive news will invoke further demand for the currency that has seen so much pressure in the first half of 2014.
 

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