HiFX: Foreign Exchange Specialists

• Weekly briefings

AU Data

• Mon Tentative HIA New Home Sales previous  -4.5% m/m 
• Mon 10.30 MI Inflation Gauge previous -0.3% m/m 
• Mon 11.30 Private Sector Credit previous -0.2% m/m expectation 0.2%
• Mon 11.30 Company Operating Profits previous -7.8% q/q expectation 0.1%
• Tue 09.30 AIG Manufacturing Index previous 51.7  
• Tue 11.30 Building Approvals previous 2.7% m/m expectation 2.1%
• Tue 14.30 RBA Interest Rate Decision previous 3.50% expectation 3.75%
• Tue 14.30 RBA Statement      
• Tue 16.30 Commodity Prices previous -31.1% y/y 
• Thu 09.30 AIG Services Index previous 54.8  
• Thu 11.30 Retail Sales previous -0.2% m/m expectation 0.4%

The RBA, through a speech by Deputy Governor Ric Battellino, gave a very upbeat assessment of the economy last week and fuelled expectations of another interest rate hike on December 1. Battellino stated that the economy had entered a new growth phase that would last years, underpinned by booming mining investment, rapid population growth and rising household incomes. This positive sentiment was underpinned by data releases; New Auto Sales (+3.7% m/m), Construction Work Done (+2.2% q/q) both beat market forecasts. The headline release for Private Capital Expenditure (-3.9% q/q) initially dented rate rise sentiment but a big upward revision to spending plans for all of 2009/2010 suggested the dip was a lagged effect of the global financial crisis and that capex will have positive implications for employment and GDP growth for the remainder of the 2010 financial year. The big market mover in the week was the announcement by Dubai that it was suspending bond repayments on two of its quasi-sovereign firms with a view to restructuring the debt in these highly leveraged entities. Abu Dhabi, the richest and more conservative member of the emirate states, went some way to calming market jitters by announcing it would selectively support its neighbour without giving blanket assistance. The AUD had a wild ride hitting a weekly high of 0.9320 on Wednesday then a low 0.8944 on Friday (a weekly range of over 4%) before settling at 0.9065 at the close. Volatility looks set to remain high within a 0.8900-0.9300 range in the coming week with the main focus on the RBA rate decision on Tuesday; the market is now only pricing a 25% probability of a rate increase, however, given the very positive Central Bank view discussed earlier, I am looking for 25 basis points this week given that the next scheduled meeting is not until February.

NZ Data

• Mon 08.45 Building Consents previous 3.3% m/m 
• Thu 13.00 ANZ Commodity Prices previous 4.6% m/m

Producer Price data last week showed no pipeline pressure on inflation in Q3 and therefore no cause as yet for the RBNZ to waiver from its stated course of keeping interest rates low until H2 2010. Producer input prices declined 1.1% q/q led by milk (-21%) and power (-8.2%), producer output prices fell by 1.4% q/q. Credit card billings edged up in October (+0.2% m/m) but are still 0.4% lower than a year ago, as consumers remain cautious amid continued job insecurity and anaemic growth. This week Business Confidence will be watched for any further slippage from 10 year highs.

US Data

• Tue 01.45 Chicago PMI previous 54.2 expectation 53.1
• Wed 02.00 ISM Manufacturing PMI previous 55.7 expectation 54.7
• Wed 02.00 Pending Home Sales previous 6.1% m/m expectation -0.2%
• Wed 02.00 Construction Spending previous 0.8% m/m expectation -0.3%
• Wed 02.00 ISM Manufacturing Prices previous 65.0 expectation 65.1
• Wed Tentative Total Vehicle Sales previous 10.5m expectation 10.5m
• Wed 23.30 Challenger Job Cuts previous -50.7% y/y 
• Thu 00.15 ADP Non-farm Employment Change previous -203k expectation -145k
• Thu 06.00 Beige Book       
• Fri 00.30 Unemployment Claims previous 466k expectation 480k
• Fri 00.30 Revised Non-farm Productivity previous 9.5% q/q expectation 8.5%
• Fri 00.30 Revised Unit Labour Costs previous -5.2% q/q expectation -4.3%
• Fri 02.00 ISM Non-manufacturing PMI previous 50.6 expectation 51.6
• Sat 00.30 Non-farm Payrolls previous -190k expectation -111k
• Sat 00.30 Unemployment Rate previous 10.2% expectation 10.2%
• Sat 00.30 Average Hourly Earnings previous 0.3% m/m expectation 0.2%
• Sat 02.00 Factory Orders previous 0.9% m/m expectation 0.2%

Headline October Retail Sales (+1.4% m/m) beat market expectations as auto sales rebounded from a very weak September, but a sharp downward revision to the previous month (-2.3% from -1.5% m/m) and much weaker core retail sales (+0.2% m/m) that excludes autos put the capacity and willingness of households (the saviour of previous recessions) to drag the economy into sustained recovery into doubt. Industrial Production (0.1% m/m) was weaker than expected in October but managed to record its 4th straight monthly increase, however Capacity Utilisation (70.7%) is a full 10 points below its 1972-2008 average and indicates considerable slack still available to manufactures. Housing data continued its indifferent run with Housing Starts (0.529m) dropping to the lowest level in 6 months and Building Permits (0.552m) dropping back 4% in October. Further evidence of on-going housing market problems was the fall in mortgage applications that hit a 12-year low even as long-term mortgage rates were down at the lowest level for 6 months. This week preliminary GDP, more housing data and Durable Goods will be watched closely.

JPN Data

• Mon 10.15 Manufacturing PMI previous 54.3  
• Mon 10.50 Preliminary Industrial Production previous 2.1% m/m expectation 2.5%
• Mon 12.30 Average Cash Earnings previous -1.8% y/y expectations -1.7%
• Mon 16.00 Housing Starts previous -37.0% y/y expectation -33.2%
• Wed 10.50 Monetary Base previous 4.4% y/y expectation 4.7%
• Thu 10.50 Capital Spending previous -21.7% q/y expectation -15.8%

Japan’s Q3 GDP rose at an annual rate of 4.8%, beating market forecasts and recording the 2nd straight advance after the nation’s deepest post-war recession. The pace of expansion was the fastest for 2 years and reflected improving economic activity around the world that has given domestic companies the confidence to increase capital spending 1.6% in the quarter. However, 30% of Japan’s manufacturing capacity is still idle and with consumer spending still subdued by job insecurity and low wages the government remains under pressure to maintain stimulus programmes. The BOJ left rates unchanged and upgraded its assessment of the economy but reassured markets that it will keep monetary policy at very accommodative levels for some time. The Government is at odds with the BOJ’s rosy assessment of the economy and has pledged to continue stimulus into next year but is constrained by already stretched fiscal budgets.

Interest rate outlook