12:45, 28 December
Outlook (Dec 24 – Dec 28)
Please note that due to Christmas holidays liquidity in the markets will be thin which can potentially lead to increased volatility in the markets.
Housing starts came in at 1256k vs 1228k as expected and building permits data came in at 1328k vs 1260k as expected.
Housing starts have moved up and down during the year, the gains are concentrated mostly in multifamily homes and fact that permits rose 5% is a very encouraging sign. Existing home sales for the month of November came in at 5.32m vs 5.2m as expected.
Current account data for Q3 show deficit of -$124.8bn. Deficit has now grown to 2.4% of GDP, up from 2% in Q2. Increase in deficit was mainly caused by deficit in goods. Stronger USD, tariffs and slowing global demand are culprits for the data.
FED has raised interest rates by 25bp to the range of 2.25% - 2.50% as expected. New dot plot signals 2 rate hikes in 2019 instead of 3. Powell assessed risks as roughly balanced and said that FED is data dependent. He also stated that rates have now reached the bottom end of the neutral range and that there is no need for policy to be accommodative. GDP and inflation forecasts have been revised down. The fact that inflation is a bit below the target gives FED the room to be patient. FED will continue with unwinding of its balance sheet as planned which is not helpful for the stocks.
Durable goods for the month of November came in at 0.8% m/m vs 1.6% m/m as expected with prior reading being -4.3% m/m. Capital goods orders nondefense ex air came in at -0.6% m/m vs 0.2% m/m as expected, capital goods shipments nondefense ex air came in at -0.1% m/m vs 0.2% m/m as expected ex transportation category came in at -0.3% m/m vs 0.3% m/m as expected for a wide range of misses across the report.
This week we will have housing data, trade balance data and data on consumer confidence.
Important news for USD:
New Home Sales
Consumer Confidence Index
Goods Trade Balance
Pending Home Sales
According to the president of the National Assembly. the lower house of the Parliament of France, France’s budget will be bigger than EU’s limit of 3% of GDP next year. It is expected that it will reach 3.4%. During the weekend agreement was reached between Italy’s coalition government leaders and PM regarding the budget and growth was slashed from 1.5% to 0.9% or 1% to make it more credible. Finally the revised budget was accepted by the EU with budget deficit of 2.04%. One less worry for the EUR going on.
Final Core CPI for EU for the month of November came in at 1% y/y as expected. Headline CPI figure dipped a bit and came in at 1.9% y/y vs 2% y/y as expected. October trade balance data came in at 12.5bn EUR vs 14bn EUR as expected.
This week we will have inflation data from Germany.
Important news for EUR:
UK PM Spokesman has stated that talks between UK and EU are still ongoing regarding the Brexit process. Reminder that UK Parliament is on recess from December 20 to January 7. Currently it is expected that debate on Brexit deal will begin on January 9.
UK November CPI data came in as expected on all fronts, 0.2 m/m, 2.3% y/y and core CPI 1.8%. Retail Sales for November came in at 1.4% m/m vs 0.3% m/m as expected. Retail Sales are now up on 3.6% y/y. Many factors can contribute to this nice beating of the estimates, Black Friday offers, raising wages in the UK and even stockpiling of goods due to Brexit uncertainty. This data will have a positive impact on Q4 GDP.
BOE has left bank rate unchanged at 0.75% as expected with vote of 0-0-9, meaning that all 9 voting members voted unanimously for no change. They now see inflation falling below 2% in January due to falling oil prices and project Q4 and Q1 2019 GDP at 0.2%. Brexit uncertainties have intensified since November and main challenge is to asses their implications. They also see downside risks to the global economy increasing. Dovish statement in the midst of all surrounding uncertainties.
Australian government has revised their economic outlook and now it predicts higher surplus for the fiscal 2020, lower GDP and wage growth forecast for the 2018-19.
The RBA meeting minutes showed that board members agree that next move in rates will be likely up than down but that there is no strong case for near-term change in policy. Currently markets price in rate hike for Q1 of 2020. Sluggish household incomes, high debt and falling home prices have been stated as primary downside risk factors. Falling unemployment and job growth present a positive for Australian economy.
Australian employment change data came in at 37k vs 20k as expected for a big beat. Participation rate came in at 65.7% vs 65.6% as expected for the highest value ever. Unemployment ticked up to 5.1%. Another strong report showing that labour market is tightening, All gains in the employment change came from rise in part time employment change which is a bit of a downer.
New Zealand services PMI for the month of November came in at 53.5 vs 55.4 the previous month. PMI numbers are down across the globe so this data follows the trend. Business confidence in New Zealand came in at -24.1 vs -37 the previous month. This is the highest reading in 8 months and shows improvements in employment and investment intentions. Troubling is that figure is still negative showing that majority of respondents reporting expect worsening of business conditions in the coming year.
GDT Price Index sees prices up 1.7%. After a run of 13 consecutive months this makes a second consecutive auction of rising prices after the previous being 2.2%. BoP current account for Q3 came in at -6.149bn NZD vs -5.935bn NZD as expected. Lower dairy prices and higher oil prices in the Q3 contributed to a widening deficit. November trade balance came in at -861m NZD, exports were down a bit at 4.94bn NZD vs 4.98bn NZD as expected and imports came in line with expectations.
Q3 GDP numbers came in at 0.3% q/q vs 0.6% q/q as expected and 2.6% y/y vs 2.8% as expected. Since RBNZ had projected Q3 at 0.7% q/q so the result is less than half of the projected target. Rate hike is out of the question due to the miss in GDP numbers, however it will be interesting to hear if this has changed RBNZ neutral policy or they think rate hike is appropriate.
BOC Poloz stated in an interview that he expects no recession in Canada in 2019 and that Canada’s economic fundamentals are quite solid. He also stated that rates need to be more neutral with economy near full capacity.
CPI data for the month of November came in at 1.7% y/y vs 1.8% y/y as expected with prior reading showing 2.4% y/y. Monthly figure came in at -0.4% m/m as expected. There was a drop in all three major categories, goods came in at -0.7% m/m, services came in at -0.1% m/m and energy came in at -4.8% m/m. Core measures were also down but all three of them (core, median and trimmed) came in at 1.9% y/y. Since the decline in inflation is caused by more than falling oil prices it will be hard for BOC to continue their hawkish rhetoric and it can rule out the idea of rate hike in January.
Canadian manufacturing sales came in at -0.1% m/m vs 0.4% m/m as expected with prior reading showing 0.2% m/m. Wholesale trade came in at 1% m/m vs 0.4% m/m as expected. Machinery and personal/household categories were particularly strong. ADP employment in the month of November came in at 39k vs 2k the previous month. Strong rebound after previous month with trade, transportation and utilities leading the way.
Retail sales for the month of October came in at 0.3% m/m vs 0.5% m/m as expected. The ex-autos component came in at 0% m/m vs 0.2% m/m as expected and contributed to the weaker than expected reading. GDP figure for the same month came in at 0.3% m/m vs 0.2 % m/m as expected showing growth in 15 our of 20 industrial sectors with construction activity down for the 5th consecutive month.
Trade balance data for the month of November came in at -737bn Y vs – 630bn Y as expected. Exports came in at 0.1% y/y vs 1.2% as expected and imports came in at 12.5% y/y vs 11.8% as expected. Lower exports and higher imports, trade tensions and slowing global demand contributed to bigger than expected trade deficit.
BOJ has left interest rate unchanged at -0.10% as expected. They will keep current rates low for extended period of time and will continue to buy JGBs (Japanese Government Bonds). Governor Kuroda stated that downside risks are centred overseas and reiterated that impact of US – China tariff war is rather limited on Japan.
National CPI number came in at 0.8% y/y as expected with prior reading being 1.4% y/y. Decline in headline number is mostly due to falling energy prices. CPI excluding fresh food and energy came in lower at 0.3% y/y vs 0.4% y/y as expected. Inflation is heading in the wrong direction, away from the target level of 2%.
This week we will have monetary policy minutes, CPI for Tokyo region, employment and consumption data as well as data on industrial output.
Important news for JPY:
BOJ Monetary Policy Minutes
Jobs to Applications Ratio