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Economies of note - 26th July

Written by Ian Dobbs on July 26th, 2013.      0 comments

2:00PM (NZT)
Australia has inflation data out this week which came in a touch softer than expected. Whether it was soft enough to trigger another cut at next month’s RBA policy meeting is close call. The minutes from the last meeting seemed to play down the chance of an August cut, but with inflation no threat at all, a reduction in the cash rate is certainly not off the table. The biggest impact this week came from data out of China that show the manufacturing sector contracted even further. This marks the third consecutive decline and activity is now at an 11 month low. They were very poor figures indeed. The Australian dollar suffered immediately and the selling continued into the London and New York trading sessions. Sentiment was also weighed on by an article in the press saying the Australian government is looking to cut spending further. This would be needed to cover a six billion dollar fall in revenue since the May budget. Next week’s data includes building approvals, private sector credit, home sales and producer prices.  

New Zealand
It has been an interesting week so far for the NZ economy. The trade balance data showed a larger than expected surplus, with import demand not as big as expected. The focus for the week has undoubtedly been the RBNZ monetary policy announcement. The statement accompanying the unchanged cash rate, was a balanced one. Governor Wheeler highlighted that the cash rate would remain at current levels through the end of the year. The focus in the coming months will be the possible building of inflationary pressure, brought on the energetic Auckland property market. March 2014 seems like logical place for the first hike of the cash rate take place. This should not have been a major surprise to the market, but in the offshore session overnight, the NZD outperformed across the board. Next week will see the ANZ Business Confidence survey provide the domestic focus for New Zealand.

United States
It has been a mixed week for the US economy so far. Soft results from the existing homes sales numbers were balanced by a pickup in new home sales. The initial reading for the monthly manufacturing numbers also came in ahead of expectation. However, the corporate earnings season on Wall Street has been patchy at best. With equity markets close to record highs, disappointment was alway a prospect if earnings targets were missed. Overnight saw the release of the latest durable good sales numbers and the core reading was somewhat weaker than expected. This led to broad USD weakness as the currency was sold relentlessly for much of the night. Next week sees a slurry of economic news. A dual primary focus will come from the FED monetary policy statement on Wednesday and the important employment numbers on Thursday.

After a very quiet start to the week, Wednesday evening saw a raft of data out with readings on the manufacturing and service sectors. Somewhat surprisingly the data was all better than expected. Both sectors picked up in Germany and France with the overall Euro-zone numbers increasing as well. The manufacturing sector actually moved into expansionary territory for the first time in two years. This data does signal a potentially better second half of 2013 for Europe. This week has also seen consumer confidence that come in a touch better than expected. And a survey of German business sentiment showing an improvement from the previous month which was broadly in line with forecasts. Next week will be a big one with the ECB rate decision on Thursday evening. Ahead of that There is Euro-zone unemployment, and a raft of German data which includes retail sales, consumer climate and inflation.

United Kingdom
This week saw a very quiet start in the UK as the markets awaited release of the preliminary GDP numbers that came overnight. These came in at 0.6% which is twice the pace of the first quarter, and bang on expectation. This is a solid result, although there is a long way to go as UK GDP is still 3.3% below its pre-crisis levels.  For the most part the GBP has been relatively steady on most pairings, and expect this to continue next week as the market looks toward the BOE monetary policy announcement on Thursday.

This week has been a very quiet one for economic news in Japan. The positive sentiment from the upper house win for the Prime Minister Abe, has consolidated and capped further YEN weakness. The headlines have been full of rhetoric from politicians, but the comments have had little impact on market pricing. Next week’s focus comes in the form of retail sales, Household spending and industrial production figures.

The only data of note out of Canada this week has been retail sales, however it’s had quite an impact. The figures themselves were much stronger than expected coming in at 1.2% against an expectation of 0.1%. And looking into the detail of the report only added to the positivity, with virtually all sectors of the economy made an improved contribution. The increase was not due to higher prices either, as it was the volume of sales that increased. These were very good figures. It wouldn’t take much more data like this for economists to start revising up GDP estimates. The Canadian dollar immediately found support from the release and made gains across the board. Next week we get GDP data and the raw materials price index, which is a lead indicator of inflation.