Weekly Market & Currency Developments – From Our Bankers

Investor Signposts: Week Beginning June 17 2018

Australia: Jobs, business and consumer surveys dominate

• It’s probably fair to say that there are no ‘top shelf’ economic indicators for release in either Australia or the US in the coming week. But as always the indicators round out our knowledge of how the economies are performing.

• The week kicks-off on Monday with the “Overseas Arrivals & Departures” publication from the Australian Bureau of Statistics (ABS). As well as providing data on tourist arrivals and departures, there are figures on longer-term migration flows.

• Tourist arrivals rose by 2.6 per cent to a record high of 771,600 in March. Departures rose by 4.1 per cent in March to a record high of 908,100. Arrivals are up 9.0 per cent on the year with departures up by 6 per cent.

• On Tuesday the minutes of the last Reserve Bank Board meeting are released. Each meeting there is a special issue or topic that is discussed. And that discussion can prove useful in gauging member views on interest rate sensitivities.

• In terms of economic data, on Tuesday the ABS releases its publication “Residential Property Price Indexes”. The data is relatively “old”, up to just the March quarter. But apart from prices there is other data covering the average value of homes and changes in the number of homes in each state.

• Also on Tuesday is the regular weekly gauge on consumer confidence from Roy Morgan and ANZ.

• On Wednesday the Reserve Bank Governor, Philip Lowe, participates in a panel discussion at the at the Forum on Central Banking, hosted by the European Central Bank in Portugal.

• In terms of economic data, data on skilled vacancies is released on Wednesday with the CBA Business Sales Indicator.

• On Thursday the ABS issues the population data for the December quarter as well as detailed figures on the labour market. Australia’s population expanded by 395,613 people over the year to September 2017 to 24,702,851 people. Overall, Australia’s annual population growth rate rose marginally from a downwardly-revised 1.60 per cent (previous 1.61 per cent) to 1.63 per cent – still the fastest population growth in around 3 1⁄2 years.

• And the detailed job data will include information on employment by industry. The job market is coming off a record year in 2017 and employment growth is still well above average as is the growth in the number of people entering the job market.

• Also on Thursday the Reserve Bank releases the quarterly Bulletin.

Overseas: US housing data dominates

• In the US over the coming week there will be a raft of indicators on the housing market including starts, home prices and sales of existing homes.

• The week kicks off on Monday in the US with the National Association of Home Builders releasing the activity survey for June.

• On Tuesday, data on new construction – the number of homes where work began in May – is released. Over the last seven months, starts have been bouncing around at an annualised pace of 1.20-1.35 million. Starts stood at a four-month low in April of a 1.287 million annual rate.

• Also on Tuesday the regular weekly data on chain store sales is released.

• On Wednesday, data on the current account deficit will be released with existing home sales. There is around four months worth of supply of homes on the market. Sales have tracked sideways over the past year.

• Also on Wednesday the regular weekly data on mortgage finance is issued.

• On Thursday the US leading index is released with monthly data on home prices and the influential Philadelphia Federal Reserve survey.

• The US leading index is designed to show where the economy is headed, and on the basis of the 0.4 per cent increase in April, the economy has solid momentum.

• Also on Thursday in the US is the regular weekly data on new claims for unemployment insurance.

• On Friday the Markit “flash” or preliminary readings on activity in the services and manufacturing sectors are issued. And the survey results aren’t just issued in the US, but also France, Germany, Eurozone and Japan.

Financial markets

• Well, the first six months of 2018 is almost completed. So it is an opportune time to see how global sharemarkets and currencies have performed.

• CommSec has tracked the cross rate of 120 currencies against the US dollar over the year and only 18 have appreciated since the start of the year. And gains have averaged just 1.4 per cent. Around 20 currencies are unchanged against the greenback while the remainder have weakened, averaging losses of 3.3 per cent.

• The Colombian peso is strongest, up 4.2 per cent, followed by the Japanese yen. The weakest is the Venezuelan bolivar, falling from 9.975 bolivar per US dollar to 79,800 bolivar/USD. The Australian dollar is 90th, down 2.7 per cent.

• Across 73 sharemarkets, 37 have risen over 2018 while 36 have fallen. The Ukraine market is strongest, up 40 per cent while Turkey is down 17 per cent. The Australian sharemarket is in 41st spot, down 0.6 per cent this year.

Weekly Global Currency Outlook

• USD outperformance is this week’s main currency theme. Widening monetary policy divergence between the US Federal Reserve and other major central banks as well as worries about escalating US‑China trade tensions support a firmer USD. The FOMC’s interest rate normalisation cycle is intact with a slight majority of FOMC members now projecting two more 25bps federal funds rate increases this year. In contrast, other central banks like the ECB, BoE and RBA do not appear to be in a rush to remove monetary policy accommodation.

• The US announced on Friday that it will impose an additional duty of 25% on US$50bn worth of Chinese imports. In response, China announced on Saturday it will impose exactly the same on US$50bn worth of US imports. The US and China will begin to collect the additional duties on 6 July; initially on US$34bn worth of imports from each other. The start date for duties on the remaining US$16bn worth of imports from each other will be announced at a later date.

• Overall, the economic impact of those tariffs are negligible particularly compared to the size of their respective economics but more inward looking trade policies does not bode well for financial and economic sentiment. The US highlight this week will be comments by Fed Chair J. Powell at the ECB’s Forum on Central Banking (Wed).

• AUD/USD will continue to trade on the defensive this week for two reasons: (1) because the US‑China trade spat is a risk to our constructive global growth outlook; and (2) because AUD will not be able to avoid the re‑emergence theme of global monetary policy divergence. In Australia, the main focus are the RBA June meeting minutes (Tue) and comments from RBA Governor Lowe at ECB’s Forum on Central Banking (Wed). No monetary policy implications.

• NZD/USD will remain under downside pressure this week on slower New Zealand economic activity. Our ASB colleagues expect Q1 GDP growth of just 0.4% (Thu). This outcome would be weaker than the RBNZ’s May Monetary Policy Statement forecast of 0.7%, reinforcing expectations that a RBNZ interest rate hike is still a fair way off.

• EUR/USD is vulnerable to more downside this week. The ECB said it will keep rates unchanged “at least through the (northern hemisphere) summer of 2019”. At this stage, we are not changing our published view of June 2019 being the timing of the first ECB rate rise because ECB President Mario Draghi clarified “here the intention is to give a time dimension but not a precise one” in the Q&A. It will remain data dependant. German internal political uncertainty may also affect EUR.

• GBP/USD will consolidate over the coming week. The Bank of England (BoE) is widely expected to leave interest rates and asset purchases unchanged at 0.50% and £435bn, respectively (Thu). Incoming economic data has been mixed and the BoE will be reluctant to raise interest rates again until there is more clarity regarding Brexit discussions between the EU and UK.

 

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