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Economies of interest this week - 24 February 2012

Written by Sam Coxhead on February 24th, 2012.      0 comments

4:15 PM (NZT)
The Australian Economy:
The release this week of Reserve Bank of Australia (RBA) monetary policy meeting minutes, confirmed the recent market moves. The RBA is happy with the current level of the cash rate, given the improved global outlook. Looking forward the data will be considered, and if frailities return to the international arena, there is room to ease the cash rate further. The Chinese HSBC manufacturing numbers (a key index of the health of the Chinese economy), improved and has now stabilised off it lows, although it does still indicate a contracting environment. Chinese authorities this week also cut the banks Reserve Requirement Ratio. This has the effect of freeing up lending, in an effort to maintain growth at a reasonable level. Given the close relationship between the Chinese economy and demand for Australia’s exports, this is viewed as a positive for Australian demand. The shakey nature of the leadership of the ruling Labour party has been exposed this week, with another head to head likely to play out between Rudd and Gillard. Markets like certainty, and this could potentially slow demand for Australian dollars in the short term. Next week sees the release of retail sales numbers on Wednesday, and building and capital expenditure data Thursday.
 
The US Economy:
A quiet week so far in the US. Existing home sales numbers were close to expectations and the weekly jobless claims numbers at 351k continuing their recent stronger trend. Next week sees a return to a busy economic calendar with an array of numbers to create noise. Of note will be preliminary GDP numbers on Wednesday and manufacturing data on Thursday. FED chairman Ben Bernanke also gets to speak on Wednesday, at his semi-annual monetary policy report to the House Financial Services Committee. As usual, his words will be very closely followed. Interestingly the yield on US debt has started to move a little higher this week, and could be the start of a move back closer to normality, which in theory would be US dollar supportive.
 
The UK Economy:
A relatively quiet week in the UK for economic data. Interestingly the Bank of England (BOE) monetary policy meeting minutes revealing a board vote split of 7-2, with 2 members voting for 75billion worth of extra quantitative easing (QE), as opposed to the 50 billion that was passed. This voter split hints towards the bias remaining in place for further QE, and chipped away at some of the demand seen for GBP at the start of the week. Revised GDP numbers later today round out the week, and are expected to come out at -.2% for the final quarter of 2011. Next week is also relatively quiet in the UK, with just manufacturing data Thursday and housing and construction numbers on Friday.
 
The New Zealand Economy:
A quiet week on the domestic data front. The focus was the Reserve Bank of New Zealand’s Inflation Expectations Survey release. This survey showed lower expectations of 2 year inflation from respondents. This again supports the view of a stable cash rate for the bulk of 2012 at least. Moves by Chinese authorities to free up bank lending in China by the reduction of the Reserve Requirement Ratio (RRR), by 50pts, should help stimulate the NZ export sector. Next week is again light on economic data, with just the NBNZ Business Confidence Survey to provide some focus.
 
The Canadian Economy:
The focus for the week in Canada has been the retail sales numbers. These came in close to expectation and had limited effect on sentiment. Also of note were comments from Bank of Canada head about the effects of a pull back in the property market. In a shot over the bow to lenders, he said because of the leveraged nature of the residential market, it remains a frailty to the economy, and could wipe out the small amount of growth, should any dramatic decrease in property prices occur in the short to medium term. Next week the focus will be the GDP numbers due for release late on Friday. Also adding to interest is the heightened level of the oil price due to the Iran situation. This is a positive for Canada’s oil exporting regions.
 
The Japanese Economy:
The Japanese authorities and wider economy will have been constantly watching the currency markets this week. So long has it been since the YEN saw a sustained period of weakness, it will be very well received. Leading other pairings has been the USDYEN pair, and whilst it has pushed back down through the .8000 level overnight, today it has resumed its very recent upward trend. The effect that the quantitative easing by the Bank of Japan (BOJ) will be welcomed relief for Japan’s export sector that has been under pressure since the Yen strength began mid 2007. Next week’s inflation numbers should clearly display the room the BOJ has with regards to price pressure. There has only been four months of small inflation since Mar 2009, with the rest of the months showing deflationary price pressures.
 
The European Economy:
After a marathon meeting on Monday, the Euro-group of European Finance Ministers agreed to send Greece the 130 billion EURO worth of bailout funds they required to avoid an uncontrolled debt default. Subsequently the Greek Parliament have voted positively for the debt swap deal being arranged by European officials. Final approval from the majority of the bond holders is necessary to complete this part of the survival process for Greece, and its current membership in the Euro-zone. At this stage it is likely that the debt swap will be completed by the final deadline in mid March at the latest. On a further positive note, last night German business confidence numbers again beat expectations. With the next round of Long-term Refinancing Operations (LTRO) next week from the ECB, the market will start to focus on this. Decembers initial LTRO has been widely attributed to have stablised the credit markets in Europe, and wider markets globally. The LTRO is effectively quantitative easing in another form, so a lower requirement of LTRO funds from European banks would provide further demand for EURO.
 

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