Daily Market Digest: NZ Trade surplus, Brexit

Jun 27, 1:03 pm
FED RBNZ_New Zealand Dollar

New Zealand posted a trade surplus of 358 million, more than the expected 185 million. In Europe, Brexit jitters continued with markets posting steady losses.

Today’s Economic events

  • New Zealand trade balance 358mn vs. 185mn
  • Eurozone M3 money supply y/y 4.90% vs. 4.80%
  • Eurozone private loans 1/60% vs. 1.60%
  • US goods trade balance -60.6bn vs. -59.5bn

Coming Up

  • Flash services PMI
  • ECB President Draghi speech

New Zealand posts trade surplus in May

Merchandise trade figures released by Statistics New Zealand on Monday showed that the economy posted a trade surplus of 358 million New Zealand dollars in the month of May. This represented approximately 7.80% of the exports. The data exceeded analysts’ forecasts which called for a surplus of NZ$182 million. May’s trade surplus accelerated following April’s surplus of 292 million. On a year over year basis, New Zealand exports jumped 5.10% on the year to 4.57 billion, beating forecasts of 4.331 billion. The exports data also beat April’s increase of 4.30 billion.

Imports were up as well, rising at an annual rate of 5.70% to 4.22 billion, beating forecasts of 4.15 billion for the month. Leading imports was a rise in consumer goods, which jumped 16%. Capital goods including aircrafts also increased, up 138 million on the month, while intermediate goods including transportation equipment rose 105 million.

International statistics senior manager Nicola Growden said, “The latest rise in the value of consumer goods continues a series of month-on-month increases. The rise was across a broad range of consumer goods, including clothing, cosmetics, household appliances, furniture, and medicines.”

Eurozone M3 Money supply rises

Eurozone M3 money supply growth increased in May led by a modest improvement in increased lending to households. Data from the European Central Bank released earlier today showed that the broad monetary aggregate, M3 increased faster than expected by 4.90% on a yearly basis in May, following a 4.60% increase in April. Analysts predicted an increase of 4.80%. M3 growth averaged 4.80% in the three months to May. The data was consistent with analysts’ view as a gradual acceleration and a rebound in private sector credit was expected.

The growth rate of loans on an annual basis to households was slightly higher at 1.60% in May, compared to April’s 1.50%. There was an increase in the credit to general government, which increased from 10.3% in April to 11.10% in May. Credit in the private sector increased to 1.30% from 1.10%, while loans to non-financial conditions improved 1.40% in May, rising from 1.20% in April.

UK’s Osborne: Britain is open for business

UK’s Chancellor of the Exchequer spoke for the first time today following Friday’s referendum vote which saw the UK parting ways with the EU. In his statement released shortly after the European session opened, he said that Brexit will have an impact on the economy and public finances. “Britain is ready to confront what the future holds for us from a position of strength. Our economy is about as strong as it could be to confront the challenge our country now faces” Osborne said.

His remarks came as the British pound came under intense selling pressure as the markets opened on Monday. While the sterling managed to stabilize following his comments, it was only for a brief moment. On the uncertainty surrounding the Article 50, Osborne said: “Only the UK can trigger Article 50, and in my judgement, we should only do that when there is a clear view about what new arrangement we are seeking with our European neighbours.”

Despite his somewhat encouraging remarks, analysts expect further declines in the sterling. Analysts at Deutsche Bank forecast a drop to 1.15 in the GBPUSD by the end of 2016. “The UK’s record current-account deficit means the currency is the in the worst possible position for the severe slowdown in capital inflows that will result from uncertainty generated,” Oliver Harvey, FX strategist at Deutsche Bank said in a research note.

Ratings agencies also put the UK on the watch list. Moody’s lowered its ratings outlook on the UK to ‘negative’ from ‘stable.’ while S&P is also expected to have put the UK’s ratings on a watch list.

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John has over 8 years of experience specializing in the currency markets, tracking the macroeconomic and geopolitical developments shaping the financial markets. John applies a mix of fundamental and technical analysis and has a special interest in inter-market analysis and global politics.

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