Overview and expectations September 20, 2018 including New Zealand GDP
This overview highlights the most important economic events taking place today: New Zealand Gross Domestic Product (GDP), Swiss franc (CHF) Libor rate, Swiss National Bank (SNB) Monetary Policy Assessment and UK Retail Sales. Traders can benefit from anticipating and understanding how these data releases can affect the markets.
Today’s overview focuses on New Zealand GDP, CHF Libor rate, SNB Monetary Policy Assessment and UK Retail Sales. This data can affect the markets and the currencies of the respective countries. Traders can benefit by anticipating those effects and trading accordingly.
NEW ZEALAND GDP HAS SLOWEST GROWTH IN FOUR YEARS
The Gross Domestic Product (GDP) data released by the Statistics New Zealand measures the total value of all goods and services produced by New Zealand. GDP is an indicator of economic activity and health.
A high reading is bullish for the NZD, while a falling trend is bearish.
New Zealand economic growth slowed in the first quarter of 2018 with real GDP increasing by 0.5%. This is down slightly on 0.6% in the previous quarter (Q4 2017).
Over the year, the economy grew by 2.7%, down from 2.9% in 2017. This was the slowest growth since mid-2014. Despite figures showing a slowdown this year, economic growth should remain strong overall in the long-term.
The positive outlook is supported by low interest rates, planned fiscal stimulus and a tight labour market. A major downside risk to the outlook arises from the considerable reliance on Chinese export demand. If China’s economy struggles due to the escalation in tariffs by the United States, this will likely have a bearish impact on the NZD.
Analysts expect the GDP growth rate to be 0.6% at the end of this quarter. Looking forward to 12 months’ time, the GDP growth rate is expected to be 0.5%.
CHF LIBOR RATE UNCHANGED
The CHF Libor rate is the average interbank interest rate at which a large number of banks on the London money market are prepared to lend one another unsecured funds denominated in Swiss francs. The Swiss franc LIBOR interest rate serves as a base rate for other products such as savings accounts, mortgages and loans.
A higher than expected rate is bullish for the CHF, while a lower than expected rate is bearish for the CHF.
The rate is expected to be -0.73 % by the end of this quarter according to analysts’ expectations. In 12 months’ time, it is expected to remain the same at -0.73 %. In the long-term, the CHF Libor three-month rate is forecast to trend around 0.27 % in 2020.
SNB MONETARY POLICY
The Swiss SNB conducts a detailed Monetary Policy in March, June, September and December. Each of these reports results in a monetary policy decision and forecast for inflation.
In its June MPA, the SNB maintained its expansionary monetary policy, stabilising price developments and supporting economic activity. It met market expectations and kept the target range for the three-month Libor the same between −1.25% and −0.25%.
The inflation forecast for the coming quarters is slightly higher than it was in March 2018 due to a considerable rise in the price of oil. For 2019, the SNB continues to forecast inflation of 0.9%.
The exchange rate has seen little change compared to the last meeting in March and “remains highly valued” according to the SNB. Political uncertainty in Europe and the escalating trade wars between China and the United States have made investments in Swiss francs more attractive.
The SNB referred to “potential international tensions and protectionist tendencies” as one of the notable downside risks to the inflation outlook.
Alessandro Bee, a UBS economist said: “The current risks have made the SNB more cautious, because although the Swiss economy is doing better than expected the risks have risen, especially in view of what is happening in Italy.”
The SNB’s expectations for GDP growth is around 2% for the current year and expects to see unemployment falling further. Economists in a Bloomberg survey see economic growth hitting 2.6% this year and 1.8% in 2019.
According to a Reuters poll, the SNB will retain its ultra-loose monetary policy on Thursday after the Swiss franc strengthened recently, partly due to rising global political risks.
Unchanged monetary policy is consistent with sustainable growth and provides a bullish indicator for the CHF.
UK RETAIL SALES SLOWER AFTER SUMMER HEATWAVE
UK Retail sales released by the National Statistics measure the total receipts of retail stores. Changes in retail sales are an indicator of consumer spending which accounts for the majority of overall economic activity.
UK retail sales growth has slowed after the summer heatwave according to data from the British Retail Consortium. Retail sales increased 0.7% in July compared to a 0.5% decrease in June. Economists had forecast a gain of 0.2%.
Regardless of a strong August, the Confederation of British Industry (CBI) said retailers were pessimistic about the outlook.
CBI economist Anna Leach said: “The summer heatwave has kept shoppers out on the high street, with consumers splurging on food and drink for barbecues and garden parties.”
“That said, the outlook for retail remains challenging, with orders falling, prices rising, employment sliding, and investment drifting down.”
According to analysts’ expectations, UK retail sales are expected to be 2.2% by the end of this quarter. Looking forward, expectations for retail sales are expected to be 2.6% in 12 months’ time.
If the actual reading falls below expectations, this will be a bearish indicator for the GBP. However, if the actual value surpasses expectations, this will most likely have a bullish effect for GBP.
For more information about how to use the economic data in today’s analysis to make the most out of your investments, contact FXB.