G10 Currencies catch up: a relatively quiet week

In the previous week, the markets were relatively quiet, almost as if the “silence before the storm”. The main event was the RBA Monetary Policy meeting which the board decided to leave the policy rate unchanged and stating the same old data dependency stance.

In this article:

1.       Canada

2.       Australia

3.       Euro Area

4.       United States

Canada

GDP – previous week we had mixed signals from Canada with the Ivey PMI s.a for December, showed glimpses of an expanding economy and more than expected – 56.5 when expectation was 55 – but Balance of trade contracted (C$ -0.31B) when expectation was for an increase of C$1.1B. With the US economy still showing resilience and data pointing towards an expansion in the economy, this will positively impact Canada GDP.

Employment – unemployment data for January decreased to 5.7% from 5.8% in the previous month when the expectation was an increase to 5.9%. Although other components of employment data provided mixed signals, the overall data tilts towards an expanding economy. This validates the decision made in the last BoC policy rate decision.

Australia

Reserve Bank of Australia kept its policy rate unchanged. Stating that they have made good progress with inflation as it keeps coming lower and lower. The Governor – Michele Bullock – said that policy rate is and must be kept at the restrictive level as to ascertain that inflation figures that come will be to the satisfaction of all.

Consumers are expressing concerns with current level of policy rates and with

China´s economy in the mud, it does not paint a good picture going forward. Bullock mentioned that RBA has taken into consideration the Chinese situation and that it is imbued in their projections.

Data released earlier this week showed that Australia had a trade surplus for December, a surplus of AUD 10.96 billion which was close to expected figure of AUD 11.76 billion. China – the country´s biggest trade partner, contributed 6.9% MoM to a nine-month high of AUD 18.51 billion. Non-monetary Gold was the biggest contributor to this outflow. Balance of trade is forecasted to end the year around the figures of AUD 8-9 billion and trend around AUD 11-13 billion in 2015, partially reflecting China´s economic activity.

Bullock was asked to comment the implication of a fiscal policy tool – tax cut – on inflation and demand, she answered by saying that the amount of money in the fiscal envelope is the same, and that which differs is how it is being distributed to households. Thus, she believes it will not have any severe implication to RBA forecasts – the level of tax cut implemented will not have severe implications on projected inflation.

Euro Area

The EU economy is still in stagnation, nothing much has changed. The 2 biggest economies in the zone are the ones with the poorest data. PMI data for January released in the previous week showed that Spain and Italy are expanding while France is contracting – as expected. We were showered by data giving mixed feelings about the economy. Although Italy´s HCOB Services, Composite and Construction PMI increased and Business & Consumer confidence are also on the rise with 88.3 and 96.4 respectively, while previous figure was 87.3 and 95.8 respectively; retail sales MoM and Industrial Production YoY for December have slightly decreased. Netherland´s CPI and Inflation MoM and YoY figures increased together with the Manufacturing Production MoM which increased 6.8% for December when the forecast was for 0.5% increase.

For Germany, the Balance of trade and factory orders MoM for December increased in comparison with November data, but their PMI data for Services, Composite and Construction have decreased.

In all, we at RC continue to expect a bleak EU economic environment and subdued growth in the mid-term.

United States

GDP – after the positive employment data, we had last week another round of positive data confirming that the US economy is still expanding. The ISM Services PMI came out higher than expected at 53.4 (52 was the expectation) and S&P Global Services PMI Final and S&P Global Composite PMI Final both printed positive at 52.5 and 52 respectively. The economy is still standing strong and expected to avoid recession this year.

Inflation – December´s figures for Core Inflation Rate MoM Final and normal Inflation rate MoM Final stayed the same (unchanged) from previous figures at 0.3% and 0.2% respectively. Showing that inflation is not yet tamed but it is indeed in its path to targeted levels.

FED – previous week we had many FED officials giving individual speeches. For this week we have 3 of them. As we have January´s retails sales and inflation data being released this week, markets will look to see what it is said in those speeches as to gauge the sentiment of the board. Markets are looking to see whether January´s data printed was a “one off thing” or not.

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