As we head into the Christmas holiday season it is no surprise that one of the must eventful economic and political years in recent times will likely continue to deliver even more twists and turns.
Australia’s staunchly defended AAA rating goes on the chopping block on Monday as the Federal Treasurer Scott Morrison delivers the Mid-Year Economic and Fiscal Outlook (MYEFO). All but the most optimistic of economic observers are anticipating that the ratings agencies, for what they are really worth, will finally take a chunk out of Australia’s AAA rating as a result of the expected dreary outlook. It could be argued that if this does occur it was only a matter of time and if it doesn’t that it could possibly happen as early as the first quarter of 2017 assuming that the fiscal position remains largely unaltered. What is certain, however, is that there will no doubt be a massive political blame game with neither major party willing to accept even the smallest ounce of responsibility for the predicament.
Recent gains in commodity prices are unlikely to offset continued weakness in Australian wage growth as well as a stagnating tax base and softer economic performance that was highlighted by the recent poor GDP result. The RBA meeting minutes from 2016’s final meeting will make for interesting reading on Tuesday, particularly the amount of weight applied to what was still an anticipated US rate cut at the time. The US FOMC effectively delivered a de facto rate cut for the RBA when they raised US interest rates on Thursday last week (AEST and NZT). The AUD initially tried to weather the gains from the USD before falling over the weekend and bouncing around either side of 0.7300 to open the week.
New Zealand’s new Prime Minister Bill English has completed a cabinet reshuffle over the weekend and will also be anticipating a further strong GDP figure when it is released on Thursday. There are a number of key metrics due for release in New Zealand this week ahead of the holiday season with consumer sentiment and business confidence starting the ball rolling on Monday alongside building consents data. The final GlobalDairyTrade Auction for the year takes place in the early hours of Wednesday morning ahead of trade balance, visitor arrivals data and credit card spending figures.
The big global story of last week, the US Federal Reserve’s decision to increase interest rates, took few by surprise and as anticipated it was the accompanying statement that demanded most attention. Fed Chair Yellen highlighted the expectation of three interest rate rises next year which differed from the general consensus that two would be likely. This helped the USD continue its recent surge heading into the new year. Yellen’s testimony on the state of the US labor market will be eagerly anticipated this week considering that the Fed has largely stated that it is meeting its labor market objectives. Its other key objective price stability and inflation will also be drawn into question later in the week when its preferred price measure – Personal Consumption Expenditure – data is released.
The EUR is heading into the end of the year again under enormous pressure against the USD breaching the lowest level since 2003. There is a range of data emerging from Germany in particular before the ECB Bulletin is released on Thursday. The terms of the UK’s looming Brexit continues to remain topical on both sides of the Channel and this will no doubt continue unabated through the first quarter of 2017. It will be a relatively slow start to the economic week in the UK before the Final GDP data and current account figures are released on Friday. Revised business investment data will also be released on Friday with all this metrics likely to be viewed through the spectre of the looming Brexit.
Chinese data this week is very limited with the CB Leading Index due for release on Wednesday. The Bank of Japan will meet on Tuesday for its final meeting of 2016. Of note recently has been the meeting of Japan Prime Minister Abe and Russia President Putin with discussion regarding longstanding disputed islands and a general economic view.
This is the final weekly preview for 2016. Thank you to all of the readers this year and we look forward to coming back online with the first 2017 report on Monday January 16th.