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October 2016

Australia business conditions pick up in September

Published: Tuesday 11 October 2016

  • Australia business conditions pick up in September 
  • US Dollar firm on renewed rate speculation
  • Concerns over post-EU trade tariffs 
Overnight, Australia’s NAB Business Confidence Index remained unchanged at 6 in September while their Business Condition Index rose to 8.  But National Australia Bank noted that "we still expect the economy to slow into 2018 as momentum from commodity exports, housing construction and AUD depreciation is lost." And, "ongoing low inflation combined with a more subdued growth outlook is expected to jolt the Reserve Bank of Australia (RBA) into action, cutting the cash rate by 25 basis points two more times in 2017." Australian Home Approvals Loans were also down 3.0% in August after another steep monthly fall in a row.

The US Dollar remains firm on revived expectation of a December Federal Reserve interest rate rise. Federal Fund Futures are pricing in nearly 70% chance of December hike, compared to 65% just a day ago.

The Federal Reserve’s Vice Chair, Stanley Fischer, said that September's decision to keep the interest rate unchanged was a "close call". And that Federal Open Market Committee (FOMC) members "chose to wait for further evidence of continued progress toward our objective." Meanwhile, there is "little risk of falling behind the curve in the near future." Sterling remains under sustained pressure following last week’s flash crash, with concerns focused on post EU trade tariffs if the UK were to trade under The World Trade Organization (WTO) rules.

It’s worth noting that the FTSE 100 is trading near to a record level.  The fall in the Pound has boosted the market, as many of the companies in the index generate revenues abroad. A weaker Pound means overseas earnings are worth more when they are converted back into sterling.  This afternoon, the Bank of England will release the latest results from their Bond buying operations.

International relations

I am pleased to report that post referendum European cooperation remains very much alive and well, as demonstrated by the UK Coastguard’s rescue of a disorientated German paddle boarder plucked from the English Channel seven miles off the coast.  A Home Office spokesman said "The man was a German tourist in distress, but who was in the country legally." 


Today's Major Economic Releases 

Market BST Data/Event Previous Expected
EUR 10:00 German ZEW economic sentiment 0.5 4.2
EUR 10:00 EU: ZEW economic sentiment 5.4 6.3
GBP 10:00 MPC member Saunders speaks    
USD 11:00 US: NFIB small business index 94.4 95.2
CAD 13:15 Canada: Housing starts 182k 194k

Daily Currency Analysis by Chris Verdet

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