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Economies of note - 2nd August

Written by Ian Dobbs on August 2nd, 2013.      0 comments

1:20pm (NZT)
Australia
Data out of Australia this week has had little impact in changing what is very negative sentiment towards the currency. The big event was RBA governor Stevens’ speech on Tuesday. His comments have increased the likelihood of a cut next week and the market reacted to them with a materially weaker Australian dollar. He said subdued business confidence is a concern and the inflation outlook leaves room to cut rates further. The market now has priced a 90% chance of a cut at the August meeting and the currency has traded down to fresh cycle lows below 0.9000. At this point it seems the only people willing to buy AUD are those taking profit who sold it higher, and it’s hard to see what could turn it around in the near term. As well as the RBA monetary policy statement next week, we get data on retail sales, the trade balance, and employment.


New Zealand
It has been another relatively quiet week for economic news in the New Zealand economy, albeit what has been released was of a positive nature. The latest ANZ Business Confidence survey confirms the recent trend of higher optimism. The survey is now at its highest levels since 1999, and the inflation expectations have also been adjusted higher. While understandably construction costs lead the way, a net 30% of respondents expect to raise prices in the next 12 months. Adding to the positive sentiment was news of increased farmer pay-out expectations from dairy giant Fonterra. Forecast pay-out for the 13-14 season have increased 50 cents to $7.50/kg, and this will potentially lift nominal GDP by around 1.6%. Of concern to exporters will be the continuing appreciation of the NZ dollar against the AUD. Not only will there be lowered demand because of the slowing Australian economy, but exported items will earn over 10% less that they would have in March.


United States
There were two key releases scheduled for the United States this week. The first was the Fed policy meeting which was released early yesterday morning. We are still waiting for the second which is the employment report out tonight. Although the market was expecting no change from the Fed at this meeting, many have factored in a tapering of QE purchases at the September meeting. There have been some very mixed signals from the Fed in this regard over the last few weeks. The statement released yesterday did little to sharpen the picture. There was certainly no clear indication that tapering is likely in the coming months, but to be fair the statement doesn’t preclude it either. It was very similar in wording to the last statement and most in the market have kept their forecasts for a September tapering intact. This outlook was supported by very strong manufacturing data out overnight. It came in well above expectation and bodes well for growth going forward. Other data this week has been mixed and is taking a backseat to the employment report out tonight. With the Fed having directly tied monetary policy to the unemployment number, these figures are key and could easily have a big impact on expectation. All early indications are for a strong number that should support the USD going forward.


Europe
Recent data out of Europe has lent support to the outlook for a very gradual recovery in the second half of this year and into 2014. Manufacturing numbers, while not as good as in the UK and other parts of the world, are mostly over the threshold that represents expansion. This week we have also seen Euro-zone unemployment fall slightly to 12.1%. This is the first fall in over two years. The European Central Bank echoed these themes last night after their policy decision to leave rates on hold. President Draghi said there are tentative signs of an economic recovery in the Euro-zone which he sees continuing throughout this year and into the next. He also reiterated his ‘soft forward guidance’ that he sees rates staying low for the foreseeable future. There are still plenty of headwinds for the Euro-zone and any recovery will be weak and patchy at best, but it is nonetheless a step in the right direction.


United Kingdom
This week has generally seen better data out of the UK. Last night before the Bank of England (BOE) rate announcement we got the best data yet. A reading on the manufacturing sector came in much stronger than expected. It actually printed at the best level in more than two years. Although this lent some support to the Pound Sterling, the market wasn’t keen to do too much ahead of the BOE announcement. The BOE rate decision turned out to be a non-event as there was very little to trade off. As widely expected the bank left the cash rate and the level of quantitative easing unchanged. But unlike last time they released no statement. It seems we must now wait for the BOE’s inflation report on 7th August to get further details on the forward guidance governor Carney implemented at the previous meeting. That will be the focus for next week, when we also get readings on the service sector, industrial production, retail sales, and the trade balance.


Japan
Data out of Japan the last week has been somewhat patchy, but overall it’s done nothing to change the current outlook for continued ultra-easy monetary policy. The best recent data came in the form of inflation figures released last Friday. The stronger than expected result will be pleasing for Government and BOJ officials. Since then we have had two other solid releases. The first being unemployment that beat expectation coming in at 3.9%, and the second being housing starts. Although the housing data came in below expectation it was still a strong result and an improvement over last month. On the negative side we got some very average industrial production data this week along with slightly weaker average earnings figures. The Yen has managed to hold onto the gains it made in the wake of the inflation data. But with the outlook for current monetary policy to remain in place for the foreseeable future further gains should prove tough. Next week the focus will be on the BOJs monetary policy statement along with current account and consumer confidence data.


Canada
The only data of note out of Canada this week has been GDP for May, which did disappoint the market a touch. Expectations were for a slightly stronger result and the Canadian dollar lost some ground in the initial aftermath of the release. Economists are also warning that the June number, to be released next month, could be very weak. This is due to the very serious flooding seen in June in the oil rich Alberta region. Next week we get readings on the trade balance, building permits, housing starts, and employment.
 

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