HiFX: Foreign Exchange Specialists

• Weekly briefings

AU Data

• Mon 10.30 Melbourne Institute Inflation Gauge previous 0.3% m/m 
• Mon 11.30 ANZ Job Advertisements previous 5.2% m/m 
• Tue 11.30 Home Loans previous -1.4% m/m expectation -0.4%
• Thu 11.30 Employment Change previous 31.2k expectation 10.2k
• Thu 11.30 Unemployment Rate previous 5.7% expectation 5.8%

Chances of another hike in official interest rates increased last week with release of November Retail Sales (+1.4% m/m) that surged past expectations (+0.3% m/m) to record the biggest increase in 8 months. The data was strong across all sectors and all states as consumers apparently shook of the drag on disposable income from 75 basis points of increases so far in this tightening cycle. Elsewhere, the Australian Industry Groups series of releases were mixed; the Manufacturing Index (48.5 from 51.2) fell back into contraction, the Services Index (50.0 from 52.5) slipped back but showed employment in the sector improving and the Construction Index (49.3 from 47.6) ticked closer to expansionary levels but is finding activity constrained by tight credit conditions. This week’s Employment Change will be watched closely as another strong number will further increase market expectations of a record 4th consecutive increase in official rates on February 2.

NZ Data

• Tue 08.00 NZIER Business Confidence previous 36  
• Wed 13.00 ANZ Commodity Prices previous 10.5% m/m 
• Thu 08.45 Building Consents previous 11.7% m/m

US Data

• Wed 00.30 Trade Balance previous -32.9b expectation -34.9b
• Wed 02.00 IBD/TIPP Economic Optimism previous 46.8 expectation 49.2
• Thu 06.00 Beige Book       
• Thu 06.00 Federal Budget Balance previous 120.3b expectation -84.9b
• Fri 00.30 Core Retail Sales previous 1.2% m/m expectation 0.3%
• Fri 00.30 Retail Sales previous 1.3%% m/m expectation 0.4%
• Fri 00.30 Unemployment Claims previous 434k expectation 438k
• Fri 00.30 Import Prices previous 1.7% m/m expectation -0.1%
• Fri 02.00 Business Inventories previous 0.2% m/m expectation 0.0%
• Sat 00.30 Core Consumer Price Index previous 0.0% m/m expectation 0.1%
• Sat 00.30 Consumer Price Index previous 0.4% m/m expectation 0.2%
• Sat 00.30 Empire State Manufacturing Index previous 2.6 expectation 11.2
• Sat 01.15 Capacity Utilisation Rate previous 71.3% expectation 72.0%
• Sat 01.15 Industrial Production previous 0.8% m/m expectation 0.7%
• Sat 01.55 Preliminary UoM Consumer Sentiment previous 72.5 expectation 73.7
• Sat 01.55 Preliminary UoM Inflation Expectations previous 2.5%

For a majority of last week the market spent time looking for reasons as to why the Fed should start to tighten monetary policy in H2 2010. Manufacturing PMI (55.9 from 53.6) data was encouraging, Factory Orders (+1.1% m/m) and Auto Sales (11.3m) were also upbeat. The FOMC minutes from the December 15-16 meeting were closely scrutinised but with Board members still worried about the fragile housing market, high unemployment and the effects of winding back quantitative easing there was little for the interest rate bulls to latch on to. The employment data is always closely watched in the first week of any month and December Non-farm Payrolls (-85k) disappointed the market but November was revised to show an increase in Payrolls of 4k from -11k. The Unemployment Rate held at 10% but this would have been much higher had a shockingly large number of discouraged jobseekers (929k) not left the work force completely. Finally, Consumer Credit plunged by a record 17.5b in November and dropped for the 10th straight month, which is the longest streak since records began in 1943. Although debit cards (not included in credit data) have been picking up some of the slack in credit spending, this does not bode well for a sharp return to consumer led growth that has been the saviour of previous US recessions. On this theme Retail Sales will be watched closely this week along with Industrial Production and the Empire State Manufacturing Index.

JPN Data

• Mon All Day Bank Holiday     
• Tue 10.50 Bank Lending previous 0.2% y/y 
• Tue 10.50 Current Account previous 1.38t expectation 1.22t
• Tue 10.50 M2 Money Stock previous 3.3% y/y expectation 3.3%
• Tue 16.00 Economy Watchers Sentiment previous 33.9 expectation 34.2
• Wed 17.00 Preliminary Machine Tool Orders previous -8.4% y/y 
• Thu 10.50 Core Machinery Orders previous -4.5% m/m expectation 0.3%
• Thu 10.50 Capital Goods Price Index previous -4.9% y/y expectation -3.8%

Last week saw the Index of Coincident Economic Indicators, which measures the current state of the economy, rise by a preliminary 1.6 points in November; the 8th straight monthly increase, as components such industrial output and durable goods orders continued to show improvement. The Leading Indicator (+1.8 points), compiled using data such as job offers and consumer sentiment, also extended its run of consecutive monthly gains to 9. However, concerns exist that as government stimulus is reined back in foreign markets Japan’s export dominated economy will slow to a crawl in 2010.

Interest rate outlook