Market review for for Apr 21, 2017

In New Zealand this morning, New Zealand consumer confidence eased in April, weighed by a slowdown in the property market and growing expectations that interest rates will rise.

The ANZ-Roy Morgan consumer confidence index decreased to 121.7 from 125.2 in March, still above the average of 118. The current conditions index slipped to 123.2 from 125.9 while the future conditions index eased to 120.8 from 124.8.

New Zealand's economy has been underpinned by an expanding population, strong tourism, and a buoyant property market stoking consumer spending, while the labor market has remained robust with new jobs being created for the inflow of migrants.

ANZ's composite confidence gauge, which combines the business and consumer indicators, continues to flag good economic momentum, said Bagrie.

Today's ANZ report showed a net 9 per cent of the 1,000 people surveyed said they were better off now than a year ago versus a net 13 per cent in March. However, a net 33 per cent expect to be in a stronger financial position 12 months from now, compared to 32 per cent a month ago.

 More people still see the economy improving this year although the level has eased, with a net 14 per cent predicting better times for the nation over the coming 12 months, compared to 21 per cent in March, while 15 per cent have an upbeat five-year outlook, down from 22 per cent.

Households were still optimistic about spending with a net 37 per cent saying now was a good time to buy a big-ticket item, down from 38 per cent in March. Annual inflation expectations rose to 4 per cent from 2.4 per cent in March, the first time it has hit that level in 17 months. House price inflation expectations for the next two years rose to 5.2 per cent from 4.6 per cent in March.

Data this week showed New Zealand consumer prices rose at their fastest annual pace in five-and-a-half years in the first quarter of 2017, further solidifying market expectations the central bank will be lifting rates sooner that it's forecasting.

New Zealand experienced a rebound in headline inflation in Q1, consistent with the global trend and higher oil prices from a year earlier.  More recent inflation data from the USA and Europe has eased, along with some flattening in oil prices and still subdued core inflation trends.  Market-based measures of longer-term inflation expectations have also eased in recent months.  However, underlying inflation measures were broadly stronger in New Zealand and have been improving, albeit from low levels, for over a year. A rising underlying inflation trend is consistent with several years of above-trend demand growth and a tight housing market.  The inflation and growth momentum in New Zealand, improved global growth outlook, and firmer dairy prices suggest that the RBNZ’s low and stable rates guidance needs to be revisited at its 11 May policy meeting.  It may continue to hold rates steady in coming meetings given it is only just getting inflation on target after a prolonged period below target.  It will also remain comforted that wage inflation remains low, although attention will fall on the Q1 labor market data on 2 May. The RBNZ will continue to call the NZD too high, but it is hard to argue for a fall in the near term unless driven by global developments.  The market is also looking for a sizeable rebound in Australia’s CPI inflation next week. Some recovery is likely after surprisingly low outcomes last year.  However, the inflation impulse was still hitting its lows in 2016 and lagging New Zealand by at least a year.  The moderate growth outlook in Australia suggests underlying inflation may take longer to clearly start to recover from record lows. AUD has struggled recently with lower iron ore prices and increasing public anxiety of the housing market.  AUD may appear somewhat more vulnerable than the NZD given its lower inflation impulse.  However improving global growth indicators, led by China, also provide support for the AUD.

Moving to Japan, Japan’s manufacturing conditions strengthened to two-month highs in April, a sign that export demand was spurring factory activity in the world’s third largest economy.

The Markit/Nikkei final manufacturing purchasing managers’ index (PMI) came in at 52.8 in April, up from a final March estimate of 52.4.

PMI readings above 50 point to expansion, whereas a reading below that level indicates contraction. April was the eighth consecutive month Japan’s PMI was above 50.

The flash results are based on roughly 85-90% of total survey responses. Markit will release its final PMI report next month once all the data are collected.

Japanese factories reported faster output and new export growth. Backlogs of work increased at a faster rate, spurring higher output and input prices.

The quantity of purchases also rose at a quicker rate, with managers giving a more optimistic view of the future.

“Driven by firmer external demand, the sector was underpinned by a stronger export performance in April, with new export orders rising at a rate amongst the best seen in the past three years,” IHS Markit senior economist Paul Smith said in a statement.

According to Markit, the data are consistent with production rising at a quarterly pace of around 2%.

Finally in the US, The latest Energy Information Administration (EIA) natural gas storage data recorded a build of 54 Billion Cubic feet (Bcf) for the week ending April 14th.

This was the third successive weekly build and above consensus forecasts of an increase of 50 Bcf while the latest build was the largest for over five months.

The significant increase in stocks for the week illustrates that weather conditions will need to be substantially colder than normal to trigger a significant draw in stocks. There will also be concerns that the first significant build of the season came slightly earlier than last year.

Stocks overall are 14.8% below the year-ago figure, but 15.4% above the five-year average.

There was an increase in stocks across all regions on the week with South Central recording the largest gain.

Supplies remained tightest in the East with a 32.2% decline in stocks compared with last year and stocks are also 17.8% below the five-year average.

Gas prices have been subjected to choppy trading conditions this week with an overall downward bias, although there has been support above $3.10 per mBtu.

Weakness in energy markets undermined natural gas prices on Wednesday, especially with fragile risk conditions. Commodity prices overall have also remained generally vulnerable which has also had a negative impact.

The latest weather forecasts suggest there will be significantly cooler conditions from late this week which will boost gas demand to some extent, although the overall impact is likely to be limited at this time of year.

Key points of today is CAD Consumer Price Index (YoY) (MAR)

The key gauge for inflation in Canada. Simply put, inflation reflects a decline in the purchasing power of the Canadian Dollar, meaning each Dollar buys fewer goods and services. CPI is the most obvious way to measure changes in purchasing power - the report tracks changes in the price of a basket of goods and services that a typical Canadian household might purchase. An increase in the index indicates that it takes more Dollars to purchase this same set of basic consumer items. As the most important indicator of inflation in Canada, Consumer Price figures are closely followed by Canada’s central bank. The Bank of Canada has a target inflation band of 1 - 3 % and uses CPI and Core CPI as its principle gauge (the Bank of Canada posts inflation targets and CPI on their homepage). A rising CPI may prompt the central bank to raise interest rates in order to manage inflation and slow economic growth. Higher interest rates make holding the Dollar more attractive to foreign investors, and this higher level of demand will place upward pressure on the value of the Dollar

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