HiFX: Foreign Exchange Specialists

• Weekly briefings

AU Data

• Mon 09.30 AIG Manufacturing Index previous 52.0  
• Mon 10.30 MI Inflation Gauge previous 0.0% 
• Mon 11.30 House Price Index previous -1.5% expectation 3.1% q/q
• Mon 16.30 Commodity Prices previous -32.3%
• Tue 14.30 Cash Rate previous 3.25% expectation 3.5%
• Tue 14.30 RBA Rate Statement    
• Wed 09.30 AIG Service Index previous 49.3
• Wed 11.30 Building Approvals previous -0.1% expectation 2.4% m/m
• Wed 11.30 Retail Sales previous 0.9% expectation 0.5% m/m
• Thu 11.30 Trade Balance previous -1.52b expectation -2.16b
• Thu 19.55 RBA Gov Stevens Speaks   
• Fri 09.30 AIG Construction Index previous 50.8
• Fri 11.30 RBA Monetary Policy    
• Fri 17.20 RBA Deputy Gov Battellino Speaks  

Last week saw the NAB Business Confidence Index surge from -4 to +16 in Q3, as companies reported an increase in trading, profits and forward orders; these levels of optimism have not been since early 2002 and prospects for solid growth of 2% in 2010 are steadily improving. Headline Consumer Prices (+1.0% m/m) rose by more than expected in Q3 as utility and fuel prices jumped, but the quarterly increase is not considered sharp enough to push the RBA into a rate hike on Tuesday of more than 25 basis points. The annual pace of CPI actually slowed to the lowest since 1999 and at 1.3% is comfortably inside the RBA target range of 2-3%. However with core inflation likely to trough at a far higher level than previously expected the RBA will be justified in steadily moving rates to a neutral 5% by mid-2010. Apart from the Melbourne Cup on Tuesday the main event will be the RBA interest rate decision as well as the Australian Industry Group’s series of indices for manufacturing, services and construction throughout the week.

NZ Data

• Tue 08.45 Labor Cost Index previous 0.3% expectation 0.3% q/q
• Tue 13.00 ANZ Commodity Prices previous 6.8%  
• Thu 08.45 Employment Change previous -0.4% expectation -0.3% q/q
• Thu 08.45 Unemployment Rate previous 6.0% expectation 6.4%

NBNZ Business Confidence took a step back to 48.2 from 49.1 the previous month but managed to hold near decade highs as confidence about the economy over the next 12 months remained strong; these levels of sentiment are consistent with GDP growth of 2.5% in the coming year. As expected the RBNZ left rates on hold at 2.5% last week and Governor Bollard issued an unexpectedly dovish statement that had market traders paring back expectations of a rate rise as early as January. Bollard still sees ‘significant vulnerabilities and challenges’ for the economy and indeed does not expect to have to raise rates before July 2010; despite these comments the market is still pricing March as the month for the first hike towards a more neutral policy. New Dwelling Consents (+3.3% m/m) gave further evidence of stabilisation in the housing market and recorded an increase for the 3rd straight month. This week employment data will be the main event on the domestic front.

US Data

• Tue 02.00 ISM Manufacturing PMI previous 52.6 expectation 53.1
• Tue 02.00 Pending Home Sales previous 6.4% expectation 0.3% m/m
• Tue 02.00 Construction Spending previous 0.8% expectation -0.3% m/m
• Tue 02.00 ISM Manufacturing Prices previous 63.5 expectation 64.1
• Wed All Day Total Vehicle Sales previous 9.2M expectation 9.7m
• Wed 02.00 Factory Orders previous -0.8% expectation 1.1% m/m
• Wed 23.30 Challenger Job Cuts previous -30.2%  
• Thu 00.15 ADP Non-Farm Employment Change previous -254k expectation -188k
• Thu 02.00 ISM Non-Manufacturing PMI previous 50.9 expectation 51.6
• Thu 02.30 Crude Oil Inventories previous 0.8M  
• Thu 06.15 FOMC Statement    
• Thu 06.15 Federal Funds Rate previous <0.25% expectation <0.25%
• Fri 00.30 Unemployment Claims previous 530k expectation 519k
• Fri 00.30 Prelim Non-Farm Productivity previous 6.6%expectation 6.1% q/q
• Fri 00.30 Prelim Unit Labor Costs previous -5.9% expectation -3.7% q/q
• Sat 00.30 Non-Farm Employment Change previous -263k expectation -173k
• Sat 00.30 Unemployment Rate previous 9.8% expectation 9.9%
• Sat 00.30 Average Hourly Earnings previous 0.1% expectation 0.1% m/m
• Sat 02.00 Wholesale Inventories previous -1.3% expectation -0.9% m/m
• Sat 07.00 Consumer Credit previous -12.0b expectation -9.9b

Advanced GDP for Q3 (+3.5% annualised) saw the US break out of the worst recession for 70 years as government stimulus helped lift consumer spending and home building. The unexpectedly strong number was the fastest pace of growth since Q3 2007 and broke four quarters of declining activity. However doubts do remain about sustainability once huge government stimulus packages are eventually reined back in, with estimates suggesting that GDP growth of 1-2% is a more realistic expectation. Headline Chicago Purchasing Managers Index (54.2) jumped into expansion territory and recorded its highest level since September 2008. The detail was a little mixed with the employment component (38.3 from 38.8) falling but new orders (61.4 from 46.3) surging as record low inventory levels start to drive re-stocking. Despite the strong GDP data earlier in the week all three major equity indices finished the month with sharp sell-offs on Friday, as waning consumer sentiment and concerns about the health of financial institutions, particularly Citigroup, weighed on investor confidence. This week the Federal Reserve’s monthly policy statement will be perused for signals about when liquidity measures might be withdrawn and key Non-farm Payrolls may give an early indication of the strength of the recovery in Q4.

JPN Data

• Mon 12.30 Average Cash Earnings previous -2.7% expection -2.0% y/y
• Tue All Day Bank Holiday     
• Wed 10.50 Monetary Base previous 4.5%  
• Thu 10.50 Monetary Policy Meeting Minutes    
• Fri 16.00 Leading Indicators previous 83.2% expectation 86.4%

Last week preliminary Industrial Production (+1.4% y/y) rose more than expected and recorded the 7th straight monthly increase, the longest streak of gains in 12 years. Some doubts about longer-term stability of production do remain as much of the growth can be attributed to overseas government stimulus but in the near-term, with inventory levels at 21 year lows and shipments increasing, production is likely to be maintained at least for the next 2 months and boost Q4 GDP. Despite improving overseas markets, notably neighbouring Asia that now accounts for 50% of Japanese exports, internal demand is extremely subdued as domestic consumption remains weak. This was clearly seen in Retail Sales (-1.4% y/y) that recorded the 13th straight month of declines, as households continue to restrict spending in the face of job insecurity and falling incomes. The headline Unemployment Rate did show a slight improvement in September (5.3% from 5.5%) but job availability remained near record lows and is unlikely to improve overall consumer sentiment that would boost consumer spending, which accounts for 60% of Japanese GDP. A shortened and light week for economic releases will have Japanese markets looking to the US for market moving data.

Interest rate outlook