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Economies of note - 28th June

Written by Ian Dobbs on June 28th, 2013.      0 comments

There has been almost no economic data out of Australia this week. The change in leadership of the labour party has had little impact on the currency that has been ever so slowly recovering off it’s post Fed announcement lows. That recovery has been helped by news out of China, that their central bank has stepped in to ease the developing credit crunch. The Peoples Bank of China had been sitting on the sidelines for the last few weeks as the crunch developed. This was a signal to the banking sector to tighten up lending standards. China currently faces a challenge, one which the west spectacularly failed to deal with, which is to safely deflate a shadow banking boom. That is no easy task and there are all sorts of risks involved. There will be plenty more developments to watch in China over the coming months. Next week sees a full economic calendar for Australia with the RBA rate decision, retail sales, trade balance and building approvals data all set for release.

New Zealand
This week saw trade balance data from New Zealand that was much lower than expected, but is was countered somewhat by a big jump in business confidence. Building permits data also beat expectation, although they did show a big decrease from last month’s surprisingly strong figures. Deputy RBNZ governor Grant Spencer was in the news this week with comments on the overheating housing market. He said it was a threat to financial stability, although a rate rise is not the right policy response at this time. Instead the bank will use macro-prudential tools to help moderate house price pressure. The first of these tools will be the implementation of loan to value ratios. The NZD has ever so slowly recovered some lost ground this week, as there was little in the way of follow through buying of the USD after last week’ Fed announcement. Next week sees a very light economic calendar so the market will look offshore for driving forces in interest rate and the currency markets.

United States
The US started this week off with more good economic releases in the form of durable goods, house prices, and consumer confidence data. All of which beat market expectations and should have lent support to the US dollar. However it seems all the good news is already factored in to the dollar and it struggled to make any real gains as a result. All week we have been getting comments from Fed officials singing the same tune. That the market has overreacted to the tapering announcement and the Fed is a long way from ending easy monetary policy. This has helped to keep a lid on USD strength, and then came the final reading GDP data which showed a big downward revision. It came in at 1.8% as opposed to the previous reading of 2.4%. That data was the trigger for the USD to give up some ground as sellers finally emerged and both the NZD and AUD made gains. Last night we saw more good data from the US in the form of personal income and pending home sales. But again it’s failed to materially increase demand for the USD. Next week we see key readings on the manufacturing and non-manufacturing sectors, as well as the all-important monthly employment numbers.

Data out of Europe this week has been a mixed bag and largely uninspiring. The most notable release was German unemployment last night that was substantially better than forecast. The EUR has struggled to find much traction this week as the backup in global bond yields after the Fed announcement is going to have the biggest impact on the struggling Euro-zone economies. A big jump in borrowing cost is the last thing the euro-zone needs, especially as the focus turns to potential issues in Italy. This point is not lost on ECB president Draghi who, like other central bankers, has been all over the wires this week stressing easy monetary policy is here for the foreseeable future.  Draghi even went as far as saying their OMT (outright monetary transactions) programme, a programme where the EBC can step in to buy bonds of nations under pressure, is even more essential now. He also added later in the week that the ECB stands ready to act further to support growth. Key releases next week include Euro-zone unemployment, retail sales and the ECB rate decision.

United Kingdom
Chancellor Osborne has kept up the UK’s focus on austerity by announcing another 11.5 billion pounds of cuts in his annual spending review. This was widely expected by the market and although it won’t help growth, Osborne says it’s needed to secure the recovery. He also said Britain is moving out of intensive care and from rescue to recovery. We also got comments from outgoing BOE governor King this week who said it wouldn’t be sensible to return interest rates to normal levels before there is a sustainable recovery. We have heard from many central bankers this week who have been on the wires saying this is not the end of easy monetary policy. They all seem to be trying to talk down interest rates that have backed up in line with the US. Last night’s data in the form of current account and GDP were a little disappointing and saw the GBP drift lower against most other currencies. Tonight out of the UK we get consumer confidence and housing data, while next week there is a full economic calendar. Along with readings on the manufacturing, construction, and service sectors, we have the Bank of England rate decision to focus on.

Until today, it had been a very quiet week on the economic front for Japan. In the last few hours we have seen a number of data points released. Household spending was surprisingly weak, which will be a concern, and the unemployment rate has ticked a little higher. Inflation data was slightly better than expected although it’s still negative. However retail trade and industrial production figures both came in substantially better than expected. The impact on the currency has so far been muted. Along with reduced volatility in the currency this week, the lack of headlines on moves in Japanese stocks and bonds will have been a relief for many. Along with readings on the manufacturing and non-manufacturing sectors next week we get a speech from Governor Kuroda to focus on.

Although there has been little in the way of economic data out of Canada this week, economists are scrambling to revise down GDP forecasts for June. This is in the wake of what could become Canada’s biggest ever natural disaster. Massive flooding in the heart of oil rich Alberta has caused widespread disruption and destruction. Estimates of damage are between CAD 3 and 5 billion so far. The actual effect on GDP is tough to estimate as the resulting clean up and repair work will actually add to activity. But the disruption to output, particularly in the oil industry, has been huge and will continue to be so for some time. Early tomorrow morning we actually get the release of April’s GDP figures which are expected to show an increase of 0.1%. Next week there are two key releases in the form of trade balance and employment data.