Australia’s central bank sees a good chance that global growth continues on its current path.The global economy in Australia is looking better than it did a year ago, according to Luci Ellis, Reserve Bank of Australia’s (RBA) assistant governor for economics.
Rising political tensions, especially in Asia, and record levels of household debt at home pose risks to the central bank’s outlook. The RBA has long warned that too many home owners are over-burdened with debt, though Ellis said this is probably best regarded as a potential exacerbating factor.“If some other shock should come along, debt would make it worse,” she said. While global wage growth and inflation should pick up as the forces of supply and demand assert themselves, that “could take a while," Ellis said. If price pressures remain subdued despite reasonable growth, then policymakers face a challenge. "In that scenario, policy needs to remain appropriately expansionary while avoiding further build-up of leverage and financial risk," Ellis added.
Ellis suggested there was potential for productivity growth to pick up once spare capacity in the world’s leading economies has been fully absorbed.Australia’s central bank expects to see solid employment growth ahead as the economy gradually picks up, while noting risks from housing debt outpacing household income. Interest rates were left unchanged, the Reserve Bank of Australia gave no signal policy was set to change any time soon.
Policy makers are also enjoying a boost from government infrastructure spending as residential housing appears to have peaked. But they’d be somewhat perplexed by markets bringing forward the chance of a rate move to about 60 percent in June 2018, driven by a generally stronger developed world outlook.
European markets were trading sharply lower today because of geopolitical concerns regarding North Korea. Japan's Prime Minister Shinzo Abe told reporters that a ballistic missile that was fired by North Korea had passed over Japan. Abe has since stated that the missile posed a grave threat to Japan, and that he would ask the United Nations to ramp up the pressure on Pyongyang. The group renewed sanctions against North Korea in early August. Since then the exchange of words and actions between North Korea and the U.S. deteriorated.
As a result, investors worldwide turn to safe-haven assets. According to GfK, German consumer confidence is set to reach a near-16 year high in September. The survey of around 2,000 Germans rose to 10.9 going into September, marking the fifth consecutive monthly increase.
The New Zealand government more than doubled its budget surplus forecast this year but cut growth, flagging that the country's next government will have less spare cash. The Treasury raised its budget surplus forecast for 2016/17 to NZ$3.706 billion ($2.3 billion), boosted by a spike in corporate tax revenues, well above the NZ$1.62 billion surplus it forecast in May. It reduced its economic growth calculation for the year to June to 2.6 percent from 3.2 percent previously, and cut its growth projection to 3.5 percent in the year to June 2018 from 3.7 percent in the May budget update.
This announcement comes a month before New Zealand goes to the polls on Sept. 23 to elect a new government. Labour Party has surged in the polls since 37-year-old Jacinda Ardern took the party leadership in a gamble aimed at energizing its campaign to unseat Prime Minister Bill English and his National Party-led coalition.
"Those looking for Treasury to announce that there was money to burn ... will be very disappointed," according to a note of BNZ Head of Research Stephen Toplis."There were many who had assumed that the recent windfall gains that were flowing into tax revenues would provide the base for a much stronger future revenue track: They didn't."
Stocks fell today, while Treasuries rose with the yen as investors sought havens. Gold jumped, after Donald Trump exacerbated the controversy sparked by a racist rally in Virginia and terrorists struck a crowded street in Barcelona.Donald Trump disbanded two advisory councils staffed by CEOs. He also slammed Republican members of Congress who were critical of his remarks on race.
In economic news, weekly jobless claims fell to a seasonally adjusted 232,000 from 244,000. Meanwhile, U.S. factory output slipped in July as auto production fell off. Technology shares were also suffering the worst of the beating following disappointing results Cisco Systems Inc. The Dow Jones Industrial Average dropped 220 points or 0.95% to 21,805, as Cisco declined 4.6% after the networking-equipment company late Wednesday reported earnings that missed forecasts and predicted a drop in revenue next quarter, and Wal-Mart Stores Inc fell 2.2% after its results, which included lower-than-expected sales from its Sam’s Club division.
The Reserve Bank of New Zealand (RBNZ) held interest rates at a record low and said it doesn’t expect to raise them for two years amid weak inflation. “Monetary policy will remain accommodative for a considerable period,” Reserve Bank Governor Graeme Wheeler said in a statement after keeping the official cash rate at 1.75 percent. The bank lowered its projections for inflation.
“A lower New Zealand dollar is needed to increase tradables inflation and help deliver more balanced growth,” Wheeler said. The central bank maintained its forecast that rates won’t rise until the third quarter of 2019. The kiwi has climbed more than 7 percent against the greenback since the RBNZ’s last set of forecasts on May 11.
ASB Bank economists said the mild surprise in today’s release was that the central bank didn’t push out its forecast policy tightening due to a weaker inflation outlook. While New Zealand’s economy has been expanding over the past several years, supported by immigration and booming tourism and construction, growth fell short of expectations in the fourth quarter of 2016 and the first quarter of 2017. Employment declined in the second quarter as firms became more cautious and wage inflation remains subdued.
The USD/CHF pair collapsed 120 pips, to a fresh 10-day low, at 0.9610 as the increased safe-haven demand due to rising geopolitical concerns allowed the CHF to gather strength against its peers.
The U.S. dollar slipped 1.06 percent to a near two-week low against the Swiss franc and fell to 109.94 yen. This is the lowest level in nearly two months against the Japanese currency.The warning came after U.S. President Donald Trump told North Korea that any threat it presented to the United States would be met with "fire and fury."
The Swiss franc was on pace for its biggest single-day rise against the euro since the Swiss National Bank removed its cap on the currency in January 2015.
The U.S. dolar rose today against a basket of major rivals so far this year after a strong U.S. July payrolls report. America’s economy has beaten expectations by creating 209,000 new jobs in July. June's employment gain was revised up to 231,000 from the previously reported 222,000, while average hourly earnings increased 0.3 percent to match expectations after rising 0.2 percent in June. An upbeat Non-Farm Payroll report also showed the jobless rate has fallen to 4.3%, while annual wage growth remained at 2.5%.
The outlook for a December rate hike remained uncertain
"The dollars strength is a combination of strong payrolls, of this news on the repatriation front, and positioning," said for CNBC, Alvise Marino, FX strategist at Credit Suisse in New York. The dollar has suffered in recent months on increased doubts that the Federal Reserve would raise interest rates again this year and obstacles to U.S. President Donald Trump's pro-growth agenda. The real economy remains on a strong growth path at the start of the third quarter. The outlook for a December rate hike remained uncertain at this moment, despite the jobs data. If the labour market continues to tighten in the next months, the Fed will raise rates again later this year.
Oil prices fall on signs market still oversupplied. According to most analysts, U.S. crude stockpiles fell again last week, but supply from OPEC rose in July, a Reuters survey showed. U.S. inventory reports due on Tuesday and Wednesday are expected to show crude stocks fell by 2.9 million barrels last week.
Production rose, despite the deal
OPEC production rose in July, according to a recent Reuters survey, despite a deal to cut output. Some of the buyers that helped boost U.S. oil futures by more than 16 percent since the contract dropped below $43 a barrel in late June. "Global demand is looking pretty strong, and prices will firm around the levels seen today," BP Chief Financial Officer Brian Gilvary told Reuters.The OPEC, along with Russia and other non-members are reducing output by about 1.8 million bpd from Jan. 1, 2017 until March next year to get rid of excess supply. Oil output by OPEC rose last month by 90,000 bpd to a 2017 high.
The Swiss franc's fall to its weakest since the collapse of an official cap in 2015 dominated major currency markets on Thursday. The dollar recovered from a fall to 2-1/2 year lows. The Swiss had already fallen almost 2 percent this week. It was held largely steady for the past two years between capital seeking the security of Switzerland and a campaign of official intervention against the currency.
SNB holds 3-month Libor target range
The Swiss National Bank faces the prospect of adjusting its monetary-policy toolkit because the interest-rate benchmark it targets will be discontinued in 2021.The SNB has been targeting three-month Swiss franc Libor since 2000. Yet Libor, the benchmark underpinning more than $350 trillion of financial products, will be phased out by the end of 2021. In the wake of the manipulation allegations, Switzerland’s central bank joined international efforts to reform reference rates. There has also been a Swiss working group looking at the two rates for the local money market, the secured Swiss Average Rate Overnight (SARON), and unsecured TOIS.
European markets fall and euro is near a two-year high after Mario Draghi says that tapering will be discussed in the autumn.
Many analysts foresee a tightening in policy next year. ECB policymakers believe that the October meeting will be suitable for a decision on the QE program.
"If the outlook becomes less favorable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, the Governing Council stands ready to increase the program in terms of size and/or duration," the ECB said in its policy announcement alongside its rate decision.
The pan-European Stoxx 600 was down 0.7 percent with most sectors moving south.Auto stocks led the falls in early-afternoon trade, down by more than 3 percent. Valeo dragged down the sector, down by 6 percent, after its first half year result came in short of analysts' expectations. ACS was down 6 percent after reports that it is considering a bid for the Italian family's Atlantia.
Materials stocks, among the worst performers
Telecoms were the only sector moving slightly higher on 0.09 percent, also on earnings news.Meanwhile, Vodafone reported better-than-expected revenue growth for its first quarter, mainly thanks to the Italian and Spanish markets. Its shares were up by 1.3 percent. Materials stocks and construction were also among the worst performers, down by 1.5 percent.
Metso, the worst-performing stock
Paysafe rose to the top of the European benchmark, up by nearly 7 percent, after Blackstone and CVC Capital made a $3.71 billion bid for the company. Metso (down by 7 percent) was the worst-performing stock, after reporting second quarter results below expectations.