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Economies of note - 20th September

Written by Ian Dobbs on September 20th, 2013.      0 comments

3:00pm (NZT)
Australia
The only release of note from Australia this week has been the minutes from the last RBA meeting. They confirmed the banks move to a somewhat more neutral stance on monetary policy, although they certainly haven’t ruled out another cut. That actual quote from the RBA was “Members agreed that the Bank should again neither close off the possibility of reducing rates further nor signal an imminent intention to reduce them.” The deciding factor for any further cut could be the level of the AUD and after yesterday’s surprise from the Fed, the currency is trading around 94.5 cents to the USD. That’s a lot higher than 88 cents it was at just a few weeks ago. The RBA will not want to see these gains sustained. Next week is another light one for data with only the RBA annual report and financial stability review scheduled for release.


New Zealand
Data out of New Zealand this week has been largely supportive of the economy and the currency. We saw the current account come in substantially better than forecast and the previous number was also revised down. Yesterday saw GDP figures for the second quarter released. There were many forecasters that had called a negative result, believing the summer drought would have affected this data. As it happened any negative impact from the drought was offset by stronger retail sales, building work, and business services. The Christchurch rebuild is certainly helping here as is the strong housing market. This week we also got comments from Finance Minister Bill English during an interview on CNBC. He said he is comfortable with the current account deficit but concerned about property prices. He also said the currency in the high 70’s against the USD would be a comfortable level. After yesterday’s non-action by the Fed, the currency is pretty far from the high 70’s. In fact it’s just short of 84 cents and if it was sustained at this level it could well impact the Reserve Bank’s monetary policy going forward, as it is already providing a tightening of monetary conditions. The only data out next week is the trade balance on Wednesday, so focus will turn to offshore events.
 

United States
It is not often these days the markets get caught completely by surprise, but that was certainly the case yesterday after the Federal Reserve policy meeting. Chairman Ben Bernanke had signaled back in June that the Fed would look to start tapering asset purchases (quantitative easing-QE) later this year. He also said back then he expects QE purchases to be stopped altogether by mid-2014. At that June meeting he said the timing of any QE tapering would be data dependant. The market assumed September as a likely start date for tapering and since then the data has been broadly consistent. It has showed a gradual improvement is underway in the economy. The data hasn’t been stellar, but it certainly hasn’t been much worse than in June. So when the Fed announced no tapering yesterday the reaction was swift, and very big. Equities, gold, and long term interest rates all had big rallies, and the USD got punished. The move might have been a little overdone as Bernanke is still forecasting an end to QE in mid-2014. Once the dust settled overnight some of yesterday’s moves were reversed. Last night we also got better than expected readings from weekly jobless claims and existing home sales which helped. Data going forward will now carry even more weight than before, and this likely means more volatility as markets try to anticipate when the Fed will move. To that extent next week we have consumer confidence, durable goods orders, new home sales, GDP, and pending home sales to digest.


Europe
This week we have seen a mixed bag of data from the Eurozone. Inflation came in right on expectation and had little impact, however the current account and trade balance both came in a bit weaker than expected. However, their negative influences were offset to a degree by an improvement in the German and Eurozone economic sentiment. In Italy, Berlusconi's allies lost the vote to block the senate ouster bid, and they have so far failed to follow up on their threat of bringing down the government. Berlusconi himself says he will remain in politics even if he’s excluded from the senate. We get consumer confidence numbers early tomorrow morning and next week there is plenty more data to digest. The highlights of which will be readings on the manufacturing and service sectors, German business climate and retails sales, and a speech by ECB president Draghi on Friday.


United Kingdom
It has been an interesting week for the UK. We have seen inflation data coming in at expectation of 2.7% which is slightly down on the last reading of 2.8%. We also got the minutes from the last Bank of England (BOE) meeting, and the result of the vote for more quantitative easing - QE. The 0-9 vote, meaning no one voted in favour of more QE, was a surprise and helped to support the GBP somewhat. Then last night we got the first real piece of soft data the UK has seen in weeks. Retail sales come in well below expectation at -0.9%. Forecasts had been for a 0.4% gains and it seems the culprit was falling food sales. This saw the GBP come under a little pressure. Next week we have the house price index, current account, and final reading of GDP to focus on.
 
 
Japan
It has been a quiet week for Japan which started with a bank holiday on Monday. The first piece of economic data released was yesterday in the form of trade balance for August. It came in a touch better than forecast, at a deficit of Y 960.3bln. That is Japans 14th consecutive deficit and marks the longest string of deficits since 1979-80. This is all as a result of Japan's expanding imports of energy in the form of coal and gas that have replaced a lot of nuclear generation. The Bank of Japan’s (BOJ) Governor Kuroda has been on the wires this week saying the BOJ’s policy is clearly having a positive impact on the economy. He also says inflation shows a broad improvement in price trend and they will continue with QE as long as is deemed necessary to achieve price stability. Next week is another light one for economic data with only inflation figures on Friday of any note.


Canada
It has been a somewhat upbeat week for Canada with both manufacturing and wholesale sales beating expectation by a good margin. The more positive tone was reinforced by BOC Governor Poloz in a speech he made on Wednesday. He said Canada it is ‘on its way home’ to more natural growth as the central bank prepares to reverse nearly six years of low interest rate fuel. He said the economy is now near tipping point from improving confidence to expanding capacity and the key pieces of self-sustaining growth are falling into place. Later tonight we get inflation data and next week we have retail sales to draw focus.
 

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