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A quick wrap up of economies of interest - 1 March 2012

Written by Sam Coxhead on March 2nd, 2012.      0 comments

4:07 PM (NZT)
The Australian Economy:
Economic data in Australia this week has been weaker than expected for the most part. Retail sales was first up and managed to hit expectation at +.3%. The volatile construction sector missed expectation, with both completed work and building approvals coming in lower than. The important private capital expenditure number was very weak at -.3%, against the expectation of a 3.5% rise. Of note for the Australian economy is the Chinese manufacturing number was actually slightly better than expected at 51.0. This is the third straight month of growth after the sector contracted in November. Any reading sub 50 is a contraction. Next week is large for Australian economic observers. The RBA Monetary Policy Statement is due out Tuesday (always the first Tuesday of every month), with no change expected. Fourth quarter GDP numbers Wednesday, and unemployment numbers Thursday. Chinese inflation numbers on Friday wrap up next week.
 
The US Economy:
The positive economic data flow from the US continued this week. Better than expected housing, manufacturing and consumer sentiment numbers will be welcomed by the FED. Larger ticket durable goods numbers missed expectation, but this was overshadowed by positive sentiment elsewhere. FED Chairman Ben Bernanke made his semiannual monetary policy testimony on Wednesday. His comments were surprisingly less downbeat than in previous speeches. It was a marked change to his tone. The fact that he did not mention the possibility of further quantitative easing (“QE” – basically the electronic printing of money, to help stimulate the economy), is significant. He also remarked the unemployment rate had fallen more rapidly than previously expected. The prospect of no further QE in the near term at least, has seen bond yields (interest rates) rise and the US dollar strengthen. This is because any QE, whilst seen as helpful to economic growth, is negative in terms of a currencies value, relative to others. Whether this trend continues, will again be reliant on the news going forward. Next week’s focus will be non manufacturing activity levels reported on Tuesday, and the all important employment numbers on Friday.
 
The UK Economy:
The big news this week was the Bank of England (BOE) inflation hearing testimony’s from the various monetary policy committee members. Considering their extension of the quantitative easing(QE) program at their last meeting, the tone of their comments was somewhat surprising. While they acknowledge the economy remains under pressure, with low levels of demand, they stated they deem the current monetary policy stance to be appropriate and looking forward they will be guided by data as it comes to hand. They have not ruled out further QE, should the outlook deteriorate, they are also open to reducing stimulus. If inflation comes in ahead of expectations, the cash rate may increase earlier than the market expects.  Manufacturing numbers were slightly weaker than expected but still in positive territory. Later tonight monthly housing and construction numbers are will be released. Next week the focus will again be on the BOE at their monetary policy meeting, albeit no change is expected at all this month.
  
The New Zealand Economy:
This week has again been a quiet one for NZ domestic economic data. The volatile building consents series saw a 8.3% increase on the month, but this series is coming off 30 year lows. The NBNZ Business Confidence number bounced to 28.0 from 16.9 and importantly the “own expectations” section of the survey also saw a strong increase. This was to be expected with the continued improvement in sentiment offshore, and in particular the increased financial stability in Europe. The only focus domestically will be the RBNZ monetary policy statement next week. No change is expected to the official cash rate (OCR), however as usual any change to RBNZ’s outlook going forward indicated in their statement, will be reacted to by the market.
 
The Canadian Economy:
It has been a very quiet week so far for the domestic Canadian economy. But they do have GDP numbers due for release later on today. Also next week will provide some reasonable focus with manufacturing numbers Wednesday, the Bank of Canada (BOC) monetary policy statement Thursday and unemployment numbers Friday. The positive sentiment starting to flow from the US will also be of assistance to the Canadian dollar, over the coming months. No change is expected from the BOC at their meeting.
 
The Japanese Economy:
The Japanese economy has had some more positive news this week, albeit from 2nd tier economic data. Industrial production, capital spending and retail sales numbers all beat expectations. Next week is again light on top tier data, but we have the final GDP numbers for the 4th quarter, with the initial reading of -.6% to be adjusted. For the most part direction for the YEN will be driven by the performance of the resurgent USD.
 
The European Economy:
Another interesting week is almost past for the European economy. The much anticipated ECB term funding offer (LTRO) came in at the upper end of expectations at 529.50 billion EUROs, lent to European banks for a three year period. This amount of liquidity should see out the funding issues in Europe, whilst the financial sector restores its health. This also should mark an end to the direct stimulus from the ECB, for the time being at least. As the stability has consolidated over the last couple of months, the political tensions around Europe have ironically increased. The ongoing pool of funds for targeting stressed European states is under debate, and in particular it size. Germany does not want to see it increased, as it would be the largest contributor, so this will be a cause of ongoing tensions. The good news is that in the sessions following the LTRO, we have seen dramatic falls in the yields on the peripheral member bonds (European state funding costs). This is certainly the desired effect, and over time should have a stablising effect on demand for EUROs.
 
Of note:
Something to contemplate in the coming week is whether or not the global economy has finally reached a turning point. Potentially we are at a point when we have seen final stimulus packages rolled out from the ECB, BOE, FED and possibly the BOJ. With this in mind the market may change focus a little away from the battle of the weakening currencies, to a focus on sustained growth. Inflation may well come back into picture over the coming months also. The massive levels of liquidity are still at work in the economy, even though the implementation of the stimulus has finished. How economies perform once the stimulus is gradually reversed will become the key, again the central banks will be the focus, and the timing of cash rate increases from the current historic lows in the coming years.
 

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