China’s Inflation and Trade Data, RBNZ Next Rate Hike and UK Trade Deficit

• This week there will be a lot of data out from China including inflation and trade. According to Reuters, the data of this week should reflect a steady economy – what do you think we can expect?

We’ve seen the IMF upwardly revise its economic growth projections off the back of a solid 1^st quarter and continued expectations of fiscal support, though there will be questions on how long fiscal support will be provided and when loan growth will begin to slow, suggesting that risks remain to the economy over the medium-term

With the U.S economy failing to inspire, China needs to continue to deliver to avoid rocking the apple cart and China’s imports are as relevant to the global economic growth outlook as exports, with demand from China key to export economies in the Asian region and beyond.

Trade data is forecasted to continue reflecting stable growth in July and there hasn’t been any particularly concerning data out of China to suggest otherwise in recent weeks, so we do expect the trade data to be positive, the only question being whether forecasts are met, with June and July private sector PMI figures having continued to expand.

• On Thursday the RBNZ will announce whether they will change their key interest rate. Market consensus is there will be no change, however, there is anticipation for when the central bank will deliver hints to the next rate hike. Analysts at Westpac suggested the RBNZ may well surprise markets by emphasizing the recent run of weak data and the high exchange rate, suggesting there will be no hikes this year. What are your thoughts?

Well, its Governor Wheeler’s final monetary policy statement on Thursday and few, if any, are expecting the RBNZ Governor to catch the markets off-guard as he heads for the door, a more likely outcome to Thursday’s meeting being a more dovish RBNZ.

Recent data out of New Zealand has failed to impress, with 2^nd quarter employment change and inflation figures having been disappointing, the softer inflation data certainly good reason to remove any expectations of a rate hike through the remainder of the year.

While we aren’t expecting any surprises on Thursday, there could be the possibility of a hint towards further monetary policy easing in the months ahead should inflation continue to soften, such an indication from the RBNZ more likely than suggestions of a rate hike, with persistent weakness in the U.S Dollar now beginning to complicate outlooks for export driven economies, causing central banks to perhaps pull back from the hawkish sentiment of late.

It certainly looks to be Kiwi negative for the week, with the Kiwi already on the back foot at the start of the week, following this morning’s weaker inflation expectations for the 3^rd quarter.

• UK trade has been a hot topic and key indicator ever since UK citizens voted to leave the EU. On Thursday we have UK trade figures for June out. Considering the disappointing May data, where do you place June’s figures?

Forecasts are for the UK trade deficit to narrow in June, with the numbers due out on Thursday and the weaker pound has been expected to continue driving demand for UK goods and services since the pound’s slump in the wake of the EU Referendum last year.

Macroeconomic data out of the UK through to the end of the 2^nd quarter had been pretty mixed, with May’s industrial and manufacturing production figures disappointing and private sector PMI numbers for both May and June having pointed to an easing in demand for UK goods and services, June demand for goods and services falling to a 5-month low.

With the services sector accounting for a significant portion of UK GDP, the numbers point to another disappointing set of trade figures on Thursday, with the current forecast pointing to a narrowing in the trade deficit, the forecasts perhaps on the more optimistic side based on survey based data and government data from the 2^nd quarter.

Projections for UK growth have been revised downwards, not only by the IMF, but also by the BoE last week and this week’s figures could be a defining moment for the pound, weak figures likely to remove any hopes of a resilient UK economy, justifying the BoE’s outlook on monetary policy through to the end of next year, with the BoE having pointed to a move as late as the 3^rd quarter of next year and nothing sooner. Even then, it’s going to boil down to how negotiations are progressing on Brexit.