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Economies of note : 7 Oct

Written by Sam Coxhead on October 7th, 2016.      0 comments

A stronger USD and a reduction in investor appetite for risk have seen the Australian dollar decline against the greenback in trade this week. Local data started with the AIG Manufacturing Index and MI inflation gauge, which both registered gains from the month prior. Building approvals for the month of August exceeded expectations by falling only 1.8% (-7% exp.), whilst the year-on-year growth was the fastest pace of growth since October last year and show a housing market which continues to have considerable momentum. The RBA left rates on hold at 1.5% on Tuesday and data from the retail sector showed retail sales posting its largest monthly rise since January, thanks to strong spending in department stores. Trade data for August showed a smaller than expected deficit for the month, although none of the aforementioned releases created any real market stir. Look to the US for direction to close the week and local data of interest next week to start with numbers on home lending and business confidence on Tuesday.
New Zealand
There has been little domestic news to drive the NZD this week. Much of the falls witnessed against the greenback have come from strength in the USD itself and as investors pared exposure towards the key ‘risk’ currencies over the course of the week. This comes as investors mull the potential for a reduction in key global central bank stimulus over the months ahead. The latest GDT dairy auction also contributed to the sentiment however, after it fell 3% overall in a result which confirmed the loss of upwards momentum witnessed in the two auctions prior. The NZIER business confidence report which rose to its highest level in more than three years failed to produce much traction in the currency markets. Focus for today will be on tonight’s critical US employment data (and the outlook for US rates), whilst next week again looks quiet with electronic card retail sales, business PMI and monthly food price data due.
United States
This week has been a positive one for the greenback which has seen it advance on the back of better than expected data and lifting confidence of a Clinton victory in the November presidential election. Key data started the ISM Manufacturing PMI which exceeded expectations and was noted for strength in new orders. The non-manufacturing read easily beat expectations by jumping to 57.1 in September, reversing August’s weak 51.4 print. Notable strength was seen in the employment component of the ISM, although the ADP employment data came in under expectations. Jobless claims fell by 5k last week to the second lowest level since 1973 and overall the labour market data points to a solid non-farm payrolls employment number tonight (+172k exp.) Other stronger than expected reads came from the Services and Markit Composite PMI’s and latest factory orders data. Looks to tonight’s US labour market data for direction well into next week, although an eye should be kept out for further Fed member talk also.
United Kingdom
Pressure has continued to be heaped on the pound sterling in trade this week. This has seen it reach fresh 31 year lows near 1.2600 against the USD overnight in a move which has completely ignored the better than expected key data releases. Elevated uncertainty over the outcome of the UK EU exit negotiations has continued to plague investor sentiment this week and come as the UK Chancellor and PM May have expressed little concern over the sterling’s slide. The key area of concern in the EU negotiations remains on UK access to the EU single market, particularly given the UK’s key capacity as a global finance hub. Data this week in the UK was dominated by PMI reads from the manufacturing, services and construction sectors. All three registered levels well into expansion territory and posted gains on the month prior exceeding their consensus expectations in the process. Focus for today will be on local industrial and manufacturing production numbers, Halifax house prices and trade numbers which all come in advance of the key US employment data.
A stronger USD and continued pressure on the neighbouring GBP has seen the Euro ease in recent trade against the greenback. Events of note this week included speculation that the ECB may begin to taper quantitative easing (QE) before the end of its program (currently EU 80 Billion a month and scheduled to end in March 2017, but likely to be extended in some form), although those reports were quashed by senior ECB officials in trade overnight. Data this week started with PMI numbers from the manufacturing sector which were flat in Germany and the euro area, although remained in expansion territory. The composite and services reads mainly edged their expectations in Germany and the euro area, although the French reads disappointed. None had any impact on the market however. German factory orders lifted 1%; the number was above expectations and should help lift expectations for an improvement in manufacturing in the months ahead. Focus to conclude the week will be on regional industrial production data and the US employment data, whilst next week kicks off with numbers on German trade and investor confidence on Monday.
A stronger USD this week has seen the recent reversal in the Yen’s fortunes continue this week. The move reflects the better than expected US data and lifting confidence of a Clinton victory in the November US presidential election. Domestic data has been light this week. Confidence amongst large manufacturers in the Tankan survey was less than expected. Respondents in the survey sector were particularly downbeat and displayed confidence levels near two year lows. Household confidence which rose to three year highs in September (beating expectations) reflected an improvement in all categories, notably so in employment prospects. However, the Chairman of the Chamber of Commerce noted that government and BOJ calls for higher wages were unlikely to boost consumption and inflation if people felt anxious over their future. This week will end on a quiet note as we look to tonight’s US employment data for the next influence.
Like all of the majors covered, the Canadian dollar has lost ground in trade this week against the greenback. The move reflects a stronger USD which was helped by sound US data and optimism over a Clinton victory in the looming US presidential election. Oil prices continued to advance during the week. This comes as confidence continued to rise on the back of last week’s OPEC agreement and on news of an unexpected  3 million barrel draw in US crude stocks in the latest week. Data from Canada started with the RBC Manufacturing PMI indicator which failed to gain as expected and trade data for August which saw the deficit come in well under expectations, in part thanks to a small rise in exports for the month. Energy exports and exports to countries outside the US helped drive the positive result. Building permits issued in August rose far more than expected. The 10.4% leap reflected higher construction intentions for condos and commercial buildings. Focus to conclude the week will be on today’s Canadian and US employment data. The Ivey PMI and the BoC business outlook survey also feature later in the day.