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A quick look at our economies of interest this week.

Written by Sam Coxhead on September 8th, 2011.      0 comments

5:45 PM (NZT)
The New Zealand Economy:
The economic calendar is very light this week for New Zealand economic data. Diary prices have consolidated at lower levels of 1.4% in the last month and down 7.7% from 12months ago. Today saw quarterly building statistics released. Building activity has slipped to a 10year low, with residential leading the fall, with Christchurch rebuilding yet to impact on the statistics the construction sector continues to struggle. The interest rate market is currently pricing around 17pts of tightening by December, or 70% chance of a 25pt hike in the cash rate. Various commentators have been pushing out their expectations of the hikes until March or June, with the global economy causing their concerns. We have the RBNZ Monetary Policy Statement Thursday next week and we can expect a very much wait and see approach from Dr Bollard.

The Australian Economy:
It has been a busy week for economic data in the Australian economy. The focus started with the Reserve Bank of Australia (RBA) monetary policy decision. The RBA left the cash rate unchanged as expected. The accompanying statement held true to their recent rhetoric of having a wait and see approach to both the domestic and international economies. This caused the interest rate market to pare back expectations of an imminent cut to the cash rate, and we saw demand for AUD on the back of this. Yesterday we got the stronger than expected GDP number. The quarterly result was 1.2% growth against an expectation of a 1.0% rise. Strengthening the number further was a revision higher of the 1st quarter number from -1.2% to -.9% (negative on the back of the extensive flooding at the beginning of the year). Today saw the employment numbers released. The expectation was for 10.7k jobs to have been added, and the number was in fact a  9.7k decline, with full time employment leading the data lower. The unemployment rate has risen to 5.3% against the expected 5.1% number. This may see the interest rate market again move to price in earlier easings to the cash rate, as the RBA may start to err towards easings on the back of these employment numbers, and higher unemployment could well contain their inflationary fears.
Next week there is an absence of meaningful economic data due for release in Australia, so the lead will once again be provided by the general market appetite for risk.

The US Economy:
Tuesday saw the release of some stronger than expected non-manufacturing numbers in the US, showing the market of signs of life in the US services sector. Last night there was the “Beige Book” released. This is a Federal Reserve survey of economic activity in its 12 districts. 7 or the 12 reported stalling or slipping economic growth, while the remaining five showed slow growth. There was also news that Obama may announce a “tax holiday” for US companies holding profits in offshore centers. This would be given as an incentive for companies to repatriate funds and get the capital working in the US economy. Fed Chairman Bernanke is due to make a speech tonight on the US economic outlook and any reference to monetary policy will be closely watched. Next week sees retail sales, inflation and manufacturing numbers released. Speculations remains surrounding the extended two day monetary policy board meeting for the FED scheduled for the 20-22nd September. Odds a being placed that the FED will announce a policy coined “operation twist”, meaning it sell its short dated Treasury holdings, whilst simultaneously buying longer dated paper. This would have the effect of placing downward pressure on longer end interest rates to benefit corporate loans and mortgages alike.

The European Economy:
The major news so far in the European economy has been last night’s relief that the German Constitutional court decision to allow German funds to be loaned to bailout nations (this saw Greek banking stocks jump 30%). Tonight we have the ECB with their monetary policy decision, we are expecting no changes to be announced, especially with the G7 meeting due to commence Friday. Spanish and Italian debt remain in the firing line in the short term. The Swiss National Bank line in the sand on the EUR/CHF rate at 1.2000 may well provide some support for the EURO in times of weakness, if the SNB continue to buy German and French debt with the EURO they are forced to soak up in maintaining the CHF ceiling against the EURO. If they diversify their bought EURO, then all bets are off! This European debt situation needs something to stem the flow of fear, and maybe this G7 meeting this weekend will go some way to doing that.

The UK Economy:
So far this week we have seen weaker than expected housing numbers released but the focus will be on the Bank of England monetary policy decision later on today. No change is expected to the cash rate, but the amount of quantitative easing remains the focus. Recently there has been a move in bias from the Monetary Policy Committee towards further easing, and it will be interesting to see how this plays out over the coming months. Next week in the UK we have the monthly inflation and retail sales numbers. With inflation set to ease , this number should be of less consequence than it has been over the last year. Retail sales remain weak, and this should not change on the release of this data.

The Canadian Economy:
The Bank of Canada last night announced that their cash rate was unchanged as widely expected. They stated that the global economy had indeed deteriorated  and its previously mentioned downside risks had been realised. Various bank analysts now believe the Bank of Canada will maintain its 1% cash rate until June 2012 at least, as its largest trading partner, and neighbor the US struggle to sustain reasonable levels of economic growth. Canadian Employment numbers are due later on today, with the unemployment rate due to rise from 7.2 to 7.3%