Key Events Next Week: US Retail Sales, Trade Balance, RBNZ

Key Events Next Week: US Retail Sales, Trade Balance, RBNZ
RBNZ will meet Thursday to discuss about interest rate. While the market has widely priced in a month of pause, it's still likely for the central bank to 'shock' the market by announcing a 25 bps reduction as policymakers have earlier expressed their disappointment about domestic banks' sluggishness in passing the cuts to the public. Australia's employment in May should have driven much interest after a surprising rise in the number of jobs in April. However, we still believe a pullback will be seen in May.

International trade data will be released in the US, UK and Canada. Stabilization in economic outlook and rally in crude oil price over the past months should have shown some changes the picture of trade balance in May.

Jun 11: New Zealand: RBNZ Rate Decision

After reducing the OCR by 575 bps in previous months, the market forecast the RBNZ to remain sidelined next week as Governor Bollard may prefer to reserve some bullets for future use - when unemployment rate rises rapidly. That said, we do not rule out the possibility of another 25 bps reduction Thursday.

Although signs of recovery have been displayed in New Zealand and other parts of the world, inflation pressure has continued easing, retail sales has remained weak and employment condition has deteriorated further.

Since the previous meeting in April, NZD has appreciated by almost 20% against USD. NZD's strength is tightening the monetary policy in nature and we believe the central bank would explicitly talk about the issue in the post-meeting statement. It's also possible for RBNZ to cut rates in attempt to bring the currency down.

We believe the central bank will reiterate the statement in April that 'we expect to keep the OCR at or below the current level through until the latter part of 2010. The OCR could still move modestly lower over the coming quarters'.

RBNZ will also release the June Monetary Policy Statement (MPS). We expect the central bank have revised down GDP growth to -2.5% and +1% in fiscal 2009 and 2010 from corresponding -2.2% and +3.2% as projected in March. For inflation, CPI probably have been downgraded slightly from +3.1% and +1.6% in fiscal 2009 and 2010, respectively.





Jun 10: International Trade Balance (April)

US: US' trade deficit is expected to have widened to $29B in April from $27B in the prior month as imports should have risen while exports remained on the downtrend. That said, decline in exports should have moderated as global economic recession has stabilized. Released last week, export orders components of ISM manufacturing index has been rising (May: 48) after reaching a trough at 35.5 in December. This gave us further evidence on improvement of exports in the US.



Canada: Trade surplus in Canada should have modestly increased to CAD 1.12B in April, as driven by surge in oil price, after a strong rise to CAD 1.1B in March. China's import data remained robust in April and it had probably helped exports data in Canada. Moreover, improvement was also seen in lumber and auto part exports. However, appreciation in Canadian dollar against USD might have affected exports on the downside. Concerning imports, a small bounce is anticipated following a -4.4% decline in April.





UK: Trade deficit probably narrowed further to 6.4B pounds in April from 6.6B in the prior month. Despite the over 20% appreciation in sterling, the currency remained undervalued given the sharp fall in late 2008 and this made foreign goods appeared to be more expensive than domestic products, making decline in imports outpace decline in imports. Moreover, exporters have tried to improve profit margin by raising exports price as sterling still looked relatively cheap. Recent improvement in international trade gave further signals that UK's trade volume should have stabilized.

Jun 11: US: Retail Sales (May)

After 2 months decline, US' retail sales probably increased +0.9% mom in May as led by rise in auto sales and gasoline prices. Unit auto sales recorded a jump to 9.9M in May, the highest level since December. Although part of the sales increase was driven by dealers' discounts, we still believed some automakers did well last month and contributed increase in nominal sales.

Core retail sales (excluding autos, gasoline and building materials) should have risen +0.4% mom, following a -0.3% drop in April. Chain-store sales, which declined -0.6% in May, were worse than consensus as high- to mid- end retailers' performance was disappointing during the month.



Jun 11: Australia: Unemployment Rate (May)

Although the number of jobs surprisingly increased 27K which lowered the unemployment rate to 5.4% in April, the market forecast some correction in May. The Australian labor force survey probably showed a decline of 45K in payrolls during the month and pushed unemployment rate to 5.8%.