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Daily Market Digest: UK unemployment rate steady. Eurozone industrial production falls

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Market Summary

  • Japan’s industrial production falls 0.40% in July
  • French CPI, rises 0.30% on the month in August, matching flash estimates
  • UK average earnings rises slightly above forecasts
  • UK unemployment rate steady at 4.90% for the third consecutive month
  • Eurozone industrial production falls 1.10% in July
  • US import prices fall 0.20% in August

Today’s Economic events

  • Australia Westpac consumer sentiment 0.30% vs. 2.0% previously
  • Japan revised industrial production m/m -0.40% vs. 0.0%
  • French final CPI m/m 0.30% vs. 0.30%
  • China M2 money supply y/y 11.40% vs. 10.50%
  • China new loans 949bn vs. 725bn
  • UK average earnings index 3m/y 2.30% vs. 2.10%
  • UK claimant count change 2.4k vs. 1.7k
  • UK unemployment rate 4.90% vs. 4.90%
  • Switzerland ZEW economic expectations 2.7 vs. -2.8 previously
  • Eurozone industrial production m/m -1.10% vs. -0.80%
  • US import prices m/m -0.20% vs. -0.10%

Coming Up

  • (USD) Crude oil inventories
  • (NZD) Business NZ manufacturing index
  • (NZD) Quarterly GDP

New Zealand current account turns to deficit in Q2

New Zealand’s current account balance turned to post a deficit of 945 billion (NZD) in the second quarter, data from Statistics New Zealand showed on Wednesday. Drop in services offset the pick in exports, which led to the annual deficit of 7.4 billion or about 2.90% of the GDP. The first quarter current account was revised to show a surplus of 1.18 billion, from 1.31 billion or a revised 3.10% of GDP.

New Zealand Services exports Q2, 2016: 5.40% (Prev. 5.50%)
New Zealand Services exports Q2, 2016: 5.40% (Prev. 5.50%)

Services balanced showed the biggest change which fell 587 million in the second quarter, from 2.89 billion previously, with services exports falling 4.8 billion during the reported quarter. Stuart Jones, international statistics manager, said, “More New Zealanders went overseas this quarter than in previous June quarters. And they spent the most ever recorded while traveling for work and holidays.”

The financial account balance fell to 1.49 billion from 1.98 billion while investment abroad fell to 933 million from 2.8 billion. Foreign investment in New Zealand declined from 4.79 billion in Q1 to 2.4 billion in Q2.

Overall, the profits earned by foreign-owned New Zealand companies increased this quarter. The majority of this income was reinvested in the June quarter, rather being than paid out as dividends as it was last quarter,” Jones said in reference to the financial account balance.

The New Zealand dollar was little changed on the data although the currency remains under pressure. The second quarter GDP numbers will be coming out later tonight, with forecasts of 1.10% quarterly growth in Q2, higher than 0.70% growth seen in the previous quarter while at an annualized rate, New Zealand economy is forecast to rise 3.60% from 2.80% previously.

UK unemployment rate steady at 4.90%

Latest figures from the UK’s Office for National Statistics on the labor market showed that the country’s unemployment rate was steady at 4.90% for the third month in a row. The data suggested that Britain’s labor market continued to remain resilient showing little evidence that the Brexit vote hurt the economy.

UK Average earnings annual growth rates (incl. bonuses): 2.30%. (Prev. 2.50%)
UK Average earnings annual growth rates (incl. bonuses): 2.30%. (Prev. 2.50%)

The number of people out of work fell by 39k in the three months to July, while the employment total rose by 174k to a total of 31.77 million. The number of people seeking unemployment benefits increased by 2000, to 771k during the reported period. This was the second monthly increase.

Wage growth was a bit weaker this time with average earnings excluding bonuses rising just 2.10% in the three months to July, down from 2.30% previously. Including bonuses, wages grew at a rate of 2.30% during the three months, beating estimates but below the 2.50% seen previously.

Nick Palmber, the ONS statistician, said, “These figures show continued labor market improvement, with the employment rate remaining at a record high and inactivity at a new record low. The headline labor force survey and earnings data are for May to July, so cover one month since the result of the EU referendum became known.”

Later this week, the UK’s retail sales numbers will be coming out followed by the Bank of England’s monetary policy meeting. The central bank is expected to keep its benchmark interest rates unchanged at this week’s meeting after lowering rates by 25bps in August including launching additional stimulus measures. The BoE including some economists continue to remain cautious over the economic outlook for the UK, despite recent positive data. Hiring is expected to slow in the coming months with UK’s trade arrangement likely to sour business investment.

Eurozone Industrial Production falls in July

Industrial output in the Eurozone fell more than expected in July, highlighting concerns that the euro area’s modest economic recovery is unlikely to gain momentum. Data from the EU’s statistics agency, Eurostat showed on Wednesday that industrial production fell 1.10% in July from a month ago, following a 0.80% expansion previously, which was revised from 0.40%.

Eurozone Industrial production, July 2016 m/m: -1.10%. (Prev. 0.80%)
Eurozone Industrial Production, July 2016 m/m: -1.10%. (Prev. 0.80%)

Compared to a year ago, Eurozone industrial production is down 0.50%, which marked the biggest drop since November 2014. The headline figure was, however, better than forecasts of a 0.80% decline.

Dragging output lower was declines in the manufacturing sector for capital goods. The data suggested that investment spending stalled in the sector in the three months ending June.

In an earlier report today, data from French statistics agency, Insee showed that consumer prices in France grew at a pace of 0.30% on a month over month basis in August. On a year over year basis, French consumer prices were up 0.20%. Still, CPI continues to run well below the ECB’s 2.0% target rate. The HICP measure of inflation rose 0.40% during the year in August, unchanged from the previous month.

US import prices fell 0.20% in August

Import prices in the US fell 0.20% in August, for the first time in six months, data from Labor Department showed on Wednesday. Declining petroleum and food costs attributed to the declines as import prices contracted in August, following July’s 0.10% increase.

US Import Prices, Aug'2016: -0.20% (Prev.: 0.10%)
US Import Prices, Aug’2016: -0.20% (Prev.: 0.10%)

The headline print missed estimates of a 0.10% decline and underlines that inflation remains tame. On a year over year basis, import prices are down 2.20%, marking the smallest decline since October 2014. In July, import prices fell 3.70%.

Fuel prices fell 2.10% in August, slower than July’s 2.50% decline. Prices for natural gas, however, increased 12.10% during the month, extending the 28.0% increase from July. All imports excluding fuel recorded no change in August, according to the report. In July, non-fuel prices rose 0.30%.

Export prices were also weaker, falling 0.80% in August led by lower prices from agricultural and non-agricultural exports. Excluding agriculture, exports were down 0.40% on the month, reversing the 0.20% gains from July.

Overall, the import prices data showed that there is little domestic inflationary pressures in the US. The labor department’s import price data is seen as a gauge to indicate the momentum in inflation going forward. The US dollar was little changed on the release, as markets await US retail sales numbers during the week and consumer price index data due on Friday.

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