HiFX: Foreign Exchange Specialists

• Weekly briefings

AU Data

• Tue 11.30 Monetary Policy Meeting Minutes    
• Wed 11.00 MI Leading Index previous 1.1% m/m 
• Wed 11.30 Wage Price Index previous 0.8% q/q expectation 0.7%
• Thu 11.30 RBA Monthly Bulletin 

For the second month running the employment data stunned the market with strong numbers. The Employment Change (+24,500) showed the economy created jobs at a very healthy rate in October, with the only proviso being that most of the increase was in part-time work. The Unemployment Rate rose slightly from 5.7% to 5.8% but a long way from the very gloomy predictions of 8.75% at the height of the global financial crisis, and prompted discussion that the rate may have already topped. The data forced traders to quickly re-evaluate their expectations for an interest rate move on December 1, with the probability of another 25 basis point hike jumping sharply from 40% to 65% by the week end. Other data was also generally supportive of an economy that is building momentum, with NAB Business Confidence (+16) and Home Loans (+5.1% m/m) consolidating gains over the last 6 months. The Westpac survey of Consumer Sentiment (-2.5% m/m) did take a step backwards but is still holding above levels last seen in October 2007. The RBA monthly bulletin and monetary policy meeting minutes will be closely scrutinised for indications as to how far and fast official interest rates will be increased over the coming months.

NZ Data

• Mon 08.45 PPI Input previous 0.0% q/q expectation 0.0%
• Mon 08.45 PPI Output previous -0.7% q/q expectation 0.3%
• Fri 13.00 Credit Card Spending previous -2.3% y/y 

The Business NZ Manufacturing PMI (50.6) slipped in October but held above 50 denoting expansion from contraction and recorded its second highest level since April 2008. Encouragingly the forward looking sub-indices of new orders (53.4) and production (51.2), although softer, were able to consolidate in expansion territory and growth in activity was spread across all regions throughout NZ. Retail Sales (+0.2% m/m) were subdued in September and only managed to eke out a 0.1% gain in the whole July-September quarter, as consumers continue to be wary of inflating personal debt in the face of on-going job insecurity. During the week both the Prime Minister and RBNZ Governor bemoaned the strength of the NZD and its drag effect on domestic production, but this was somewhat eclipsed by dairy giant Fronterra, which contributes 7% to NZ GDP, as it lifted its forecast payout to farmers by 20%. Despite the promise that interest rates will remain low for some time, the NZD was able to close the week strongly (0.7437) as negative USD sentiment persisted.

US Data

• Tue 00.30 Core Retail Sales previous 0.5% m/m expectation 0.4%
• Tue 00.30 Retail Sales previous -1.5% m/m expectation 1.0%
• Tue 00.30 Empire State Manufacturing Index previous 34.6 expectation 29.9
• Tue 02.00 Business Inventories previous -1.5% m/m expectation -0.7%
• Tue 04.15 Fed Chairman Bernanke Speech    
• Wed 00.30 Producer Price Index previous -0.6% m/m expectation 0.6%
• Wed 00.30 Core PPI previous -0.1% m/m expectation 0.1%
• Wed 01.00 TIC Long-term Purchases previous 28.6b expectation 27.3b
• Wed 01.15 Capacity Utilisation previous 70.5% expectation 70.9%
• Wed 01.15 Industrial Production previous 0.7% m/m expectation 0.4%
• Wed 05.00 NAHB Housing Market Index previous 18 expectation 19
• Thu 00.30 Building Permits previous 0.57m expectation 0.59m
• Thu 00.30 Core CPI previous 0.2% m/m expectation 0.1%
• Thu 00.30 CPI previous 0.2% m/m expectation 0.2%
• Thu 00.30 Housing Starts previous 0.59m expectation 0.61m
• Fri 00.30 Unemployment Claims previous 502k expectation 503k
• Fri 02.00 Philly Fed Manufacturing Index previous 11.5 expectation 12.5
• Fri 02.00 CB Leading Index previous 1.0% m/m expectation 0.5%

The twin deficits of Federal Budget (-176.4b) and Trade (-36.5b) weighed heavily on the USD over the latter part of the week and equity markets were able to shrug off indifferent economic data to close the week only marginally off 2009 highs. Two measures of consumer confidence disappointed, IBD/TIPP Economic Optimism (47.9 from 48.7) and University of Michigan Consumer Sentiment (66.0 from 70.6) showed continued concern in households about job prospects and may inhibit retail spending in the forthcoming US holiday season that accounts for the majority of retailers annual revenue. However, equity markets were able to take the glass half full view and fed on positive earnings outlooks from Walt Disney, Abercrombie & Fitch and JC Penney, that countered the more pessimistic forecast from Wal-Mart earlier in the week. Volumes on all the equity indices were low but another strong weekly close cannot be denied and continued pressure on the USD shows little sign of abating. Retail Sales will be watched closely this week along with manufacturing data from the New York and Philadelphia Fed Reserve areas.

JPN Data

• Mon 10.50 Preliminary GDP previous 0.6% q/q expectation 0.7%
• Mon 10.50 Preliminary GDP Price Index previous 0.5% y/y expectation 0.1%
• Mon 11.30 BOJ Governor Shirakawa Speech    
• Tue 10.50 Tertiary Industry Activity previous 0.3% m/m expectation 0.1%
• Thu 15.30 All Industries Activity previous 0.9% m/m expectation -0.1%
• Fri Tentative BOJ Interest Rate Decisions previous 0.10% expectation 0.10%
• Fri Tentative Monetary Policy Statement     
• Fri Tentative BOJ Press Conference

The Economy Watchers Index (40.9), a survey of barbers, taxi drivers and other merchants who deal direct with consumers, slid to a 5-month low in October as the export-led recovery fails to spur households into spending hard earned cash. Stagnantly low Household Confidence (40.5) continues to reflect job insecurity and falling wages, and with large manufacturers still carrying excess labour and intentions to cut winter bonuses at the fastest pace on record, consumer spending is very unlikely to rebound any time soon. The Japanese recovery, as seen in Industrial Production (+2.1% m/m) that grew for the 7th straight month, is singularly reliant on growth on international markets and with US consumer sentiment faltering and anecdotal evidence of activity at US shipping ports declining it is hard to see where the next boost to growth will emanate. Manufacturers did show some underlying confidence in September by increasing core Machinery Orders (+10.5% m/m) for the second straight month, with Q4 estimates now centred around a 1% gain that if seen would be the first positive reading for 7 quarters. This week’s BOJ interest rate decision will not produce any shocks and preliminary GDP likely to attract most attention.

Interest rate outlook