"The New Zealand dollar spiked last night amid a better-than-expected job report. The unemployment rate fell to 4.9% in the first quarter, the lowest level since 2008. More surprisingly, this improvement in employment came on the back of a rise in the participation rate (up to 70.1% from 69.7% in the second quarter) and strong growth in employment (+1.4%q/q or +35k jobs). However, for now the positive trend in employment has not translated into wages as wage growth remained subdued over the September quarter. Average hourly earnings grew 0.3%q/q, widely missing estimates of 1% and below the previous reading of 0.8%. With persistently weak inflationary pressure, the RBNZ would more than welcome some help from the job market.
The Reserve Bank of New Zealand is expected to cut the official cash rate by 25bps to 1.75% at its next monetary policy meeting on November 9th. The market already began pricing in an easing move during October when NZD/USD fell more than 2%. However, mixed economic data from the US and rising uncertainty about the US election had pushed investors out of long USD positions. Moreover, interest rate differentials between New Zealand and the rest of the G10 countries keep attracting investors who are desperately seeking yields. Over the last few days, the Kiwi has jumped back to 0.7250, prompting the RBNZ to further ease."
Germany’s recovery: inflation leading the path
“Europe’s leading economy is experiencing mixed data, while inflation continues to pick up. October figures were released at 0.8% y/y late last week - the highest level in two years. However, mixed feelings prevail regarding the country’s annual retail sales performance, which is highly volatile. Annualized data printed well below expectations at 0.4% y/y versus 1.5%. Commercial activity is not strong enough to support sustainable growth. On the labour side, unemployment declined today to 6.0% from 6.1%, which is nevertheless significant.
While Germany is not doing particularly well, all eyes are on the ECB and its next moves on 8th December. Markets are clearly expecting that the QE program will be extended after March.
Meanwhile the 10-year bund has reached its highest level in five months, after October marked its highest monthly rise since 2013. Although markets are pricing in a better economic outlook due to the uptick in inflation, other data is still on the soft side. This bounce in bonds yields will be temporary and only last until the next ECB meeting. The German and Eurozone economies are at a very fragile point.”