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FX Update : US data in focus

Written by on October 25th, 2016.      0 comments

This week will again be busy in the US. Key data starts later today when we receive the Conference Board's consumer confidence numbers for October. Tomorrow’s data of interest includes new home sales and the flash estimate of services sector activity and advance data on the trade balance. Thursday’s data includes durable goods orders (a proxy for business investment) and pending home sales. However, the most important data is arguably Friday’s advance estimate of economic growth for the September quarter, where analysts expect June’s soft 1.4% annual pace to rise to a healthy 2.5%. Quarterly data on employment costs will also be released on Friday which is important for the assessment of future inflation and interest rate outlook.
Early gains last week were quickly overturned in trade on Thursday after the release of September’s employment data. The data was disappointing and showed annual jobs growth which has now slowed to 1.4% and hours worked down -0.24%. The large loss in full-time roles (53k) continues the disturbing trend which has now seen full time employment turn negative year on year. Other data included NAB business confidence which gained from the quarter prior and the Westpac-MI Leading Index which registered its strongest growth rate since December 2013, although neither had any market impact. The RBA minutes passed with little fuss and point to little chance of a rate cut next month, although critical to this prospect is tomorrow’s third quarter inflation data. Other data to be received during the week will be the Q3 export/import pricing (Thursday), and HIA new home sales and producer prices on Friday.

New Zealand
The NZD has started trade this week under the dual influence of the selling pressure which has been seen in the key CAD and AUD commodity currencies and continued demand for the greenback. Last week started well for the local unit as it reacted to higher than expected inflation data for the third quarter and a moderate rise in dairy prices. Pressure which was seen later in the week came in a large part due to the poor performance of the AUD, although demand for the CAD has also been weak, this as the market reacted to a dovish BoC and fresh news overnight of a blocked EU-Canada trade deal. Other data in NZ last week was Friday’s migration numbers which set a new high of 6,340 for September. This week is set to be quiet locally with just trade data on Thursday which will mean investors will look to the US numbers and the Australian inflation data tomorrow for influence.
United States
The greenback has got off to another positive start in trade this week after better than expected manufacturing PMI data overnight and after comments from the St. Louis Fed President Bullard who noted that December is ‘most likely’ for the next rate hike. These followed comments from the Fed’s Williams on Friday which noted an economy in good shape at (essentially) full employment as he spoke of it making sense to hike sooner rather than later. Data last week included September inflation numbers which showed rising headline inflation and a slight easing in core inflation to 2.2% y/y. Jobless claims remained low and existing home sales, the leading index and industrial production all registered gains. Housing starts fell sharply in September, although the fall related to volatile starts in multi-dwelling buildings. Permits to build new homes and strong home builder conditions indicate solid housing activity ahead. In focus this week will be tonight’s consumer confidence, new home sales (Wednesday), durable goods on Thursday and Q3 GDP on Friday (amongst other releases).

United Kingdom
Last week was a busy one for key data in the UK. Releases included numbers on inflation, employment and retail, although the sterling had one it’s quieter weeks of recent time which saw it rise moderately against the greenback overall. The data started with numbers on inflation which rose by the most in two years year-on year. The number of jobless claims rose by less than expected and unemployment held steady at 4.9%. Data from the retail sector was weaker than expected, although weather likely played a role. Data released this week started with yesterday’s CBI industrial trends orders numbers which fell sharply in October. The worse than expected result was the weakest level seen since February. In focus this week will be BBA mortgage approvals, talk from BoE Governor Carney tomorrow, and third quarter GDP data on Thursday.

Dominating focus last week was Thursday’s ECB meeting which saw the ECB leave monetary policy on hold. President Draghi’s comments were mostly dovish and appeared to pave the way for an extension of QE and widening of asset purchases at the December meeting. Data last week started with numbers on the euro zone inflation which lifted 0.4% year-on-year, well short of the near 2% ECB policy target. The  August euro zone current account surplus expanded against expectations of a contraction. German producer prices fell 1.4% from September 2015 (-1.2% exp.) as low energy prices continued to drive. The ECB’s September quarter bank survey showed strong across the board demand for loans. This week has started with flash PMI’s across the euro zone and Germany which all rose and exceeded expectations. Focus for today will be on the German IFO business climate indicators, whilst later in the week we get various consumer/business confidence reads and regional inflation prints.

Interest is again light in the Yen in trade this week after better than expected trade and manufacturing data yesterday failed to ignite traders from their slumber. The trade surplus for September beat expectations on the back of a smaller than expected decline in exports for the month, although exports have now fallen year-on-year for 12 months in a row in part due to the recent strength of the Yen. The flash Markit Manufacturing PMI registered its fastest rate of expansion in nine months. Data last week included industrial production numbers which failed to rise by the degree expected and capacity utilization which lifted by 2.6% in August. Focus for the balance of this week will be on Friday’s data which includes numbers on employment, inflation and household spending although none is expected to create more than a passing interest.

The Canadian dollar has begun the week poorly this week on the back of news overnight that the Belgian government could not sign the EU-Canada free trade treaty due to opposition from regional governments. Last week was dominated by the BoC monetary policy decision which saw the Canadian central banks leave rates on hold as expected, although issue a more dovish than expected assessment of the economy. Data releases were dominated by Friday’s inflation and retail numbers. Both sets of data underwhelmed after inflation rose just 1.3% year-on-year (1.5% exp., in a large part due to food inflation which was the lowest since February 2000) and retail sales fell marginally in August against expectations of a 0.3% rise. Manufacturing sales for August provided the only bright point after it beat expectations, although gained no market traction. Expect a quiet week this week with no data of note so look to whether the EU-Canada trade deal can get across the line and energy markets for direction.
Economic Events.
  • Japanese Industrial Production, 1.3% m/m vs. 1.5% exp. (Aug.)
  • EU Inflation, 0.4% y/y as exp. (Sep.)
  • NZ Q3 Inflation, 0.2% y/y vs. 0.1% exp.
  • UK Inflation, 1.0% y/y vs. 0.9% exp. (Sep.)
  • US Inflation, 1.5% y/y as exp. (Sep.)
  • NZ GDT Dairy Index, 1.4% vs. -3% prior.
  • UK Claimant Count Change, 0.7k. vs 3k exp. (Sep.)
  • US Building Permits, 6.3% m/m vs. 0.9% exp. (Sep.)
  • Canadian Interest Rate Decision, 0.5% as exp.
  • Australian Employment Change, -9.8k vs. 15.0k exp. (Sep.)
  • ECB Deposit Facility Rate, -0.4% as exp.
  • Canadian Inflation, 1.3% y/y vs. 1.5% exp. (Sep.)