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Economies of Note - 6 July 2012

Written by Sam Coxhead on July 6th, 2012.      0 comments

4:40 PM (NZT) The Australian Economy:
It has been an interesting week for the Australian economy. The Reserve Bank of Australia kept the cash rate unchanged at 3.50% as widely expected. Interestingly their accompanying statement did not point towards automatic easing in the coming months unless growth indicators came in lower than expected. They seem happy with the current level of the cash rate, and easier monetary conditions that previous cuts have provided. So the economic data watching continues in the short term at least. Tuesdays building approvals numbers was spectacularly strong and surprised pundits in its broad strength. Likewise Wednesdays retail sales data was stronger than expected and indicates potential to a small bounce in sentiment to round out the June quarter. Next week sees the important employment numbers due for release on Thursday and these will be the focus of the week.
 
The US Economy:

The US economy has had a mixed week so far. Monday saw the release of very average manufacturing numbers that saw the first contraction in the sector since August 2009. This result gave energy to those looking to the FED to provide further stimulus to the economy. Subsequently on Tuesday the monthly factory orders number was stronger than expected, which has confused sentiment somewhat. The real focus of the week is the employment numbers that are due to be released later on today. The unemployment rate is expected to remain unchanged at 8.2% and anything lower than this number would be well received by the market. The US dollar has seen reasonable demand against the EURO and GBP this week as the ECB and BOE monetary policy decisions approached. Next week is somewhat more quiet, with the latest FED monetary policy meeting minutes release on Wednesday being the primary focus.
 
The UK Economy:
It has been a mixed week at best for the UK economy as it led up to a much anticipated BOE monetary policy decision yesterday. Manufacturing numbers surprised to the topside , while the latest construction and services numbers were a real disappointment. The BOE decision to increase its quantitative easing (Govt bond buying to lower longer end interest rates) to 375billion GBP was anticipated by the market, and did little to add to the current downside momentum of the Pound Sterling. Next week is quiet for news on the UK economy, with just further manufacturing numbers to be released on Tuesday.
  
The New Zealand Economy:
The New Zealand economy has been devoid of economic statistics this week. Of note was the release of the result s from the latest Fonterra Global Diary Auction. Softness has return to the diary markets with the broad index down a trade weighted 5.9% since the previous auction. Next week again sees a quiet economic calendar, with only the NZIER Quarterly Survey of Business Opinion(QSBO) as a focus. In the interest rate market following the monetary easing from the ECB,BOE and PBOC, we have seen downward pressure on short term rates. The RBNZ can be expected to leave the cash rate unchanged at 2.50% well into next year. If the global outlook continues to darken , expect the market to again start to price in further easing from the RBNZ, however unlikely it may be.
 
The Canadian Economy:
The Canadian economy has had another quiet start to the week, with all the focus later on today in the form of building permits, manufacturing and employment numbers. Next week sees the release of the BOC Business Outlook Survey, housing starts and trade balance numbers. The Canadian dollar has seen choppy trade for the most part this week, as the dual forces of a slowing global outlook, and increasing central bank stimulus make for confused price action.
 
The Japanese Economy:
Monthly Japanese manufacturing numbers were less downbeat than expected. The constant threat of intervention from Japanese authorities seems to have been a factor this week, with the YEN well off its recent highs even as global growth looks under intense pressure. Next week will be an interesting one for YEN with the current account numbers on Monday, and more importantly, the BOJ monetary policy decision on Thursday. Further stimulation from the BOJ would not surprise in the current environment.
 
The European Economy:
The pressure to find solutions to the current issues continues in Europe. Funding issues for Italy and Spain again came to the fore this week as the yield on their bonds soared higher. As bond yields rise in the stressed states the EURO naturally comes under pressure. Helping the EURO lower this week has been the ECB decision to cut the cash rate by 25pts to .75%. Further easing could be expected had the inflationary pressures  in Europe not proven to be so stubborn. ECB head Draghi commented that the downside risks for the Euro-zone have not materialized and the recovery will take an extended period of time. Next week is light on top tier economic data, so again the peripheral members bonds yields will be the primary driver of sentiment.
 
Of note:
Yesterdays offshore session proved to be a very interesting one. As expected the BOE added 50billion to their Quantitative Easing program and the ECB eased their cash rate 25pts top .75%. What was unexpected was a second cut to interest rates in a month in what looks to be a very proactive move to insulate the Chinese economy from falling export demands. Adding to the central bank frenzy was Denmark’s cut to interest rates in an effort to avoid flooding of hot money flows following the ECB easing. These factors make it very confusing outlook for the commodity currencies of the AUD and NZD. Pushing up demand are the further central bank efforts – will the possibility of the FED joining the party at some stage. Fundamentally however, with falling global growth prospects, and obvious concern in Australia and NZ’s core Asian markets, the down ward pressure on the Australasian pair should be apparent. These countering influences mean we will likely see further choppy sideways price action in the short term, before it becomes apparent which factor will be of the greatest influence.
 
Topics: Economic news
 

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