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Economies of note - 7th June

Written by Ian Dobbs on June 7th, 2013.      0 comments

5.15pm (NZT)
The AUD started the week on a positive note with a solid bounce against the USD on Monday. That was as good as it got however, and the rest of the week saw the currency on the back foot. Sentiment wasn’t helped by data this week that disappointed. Retail sales, GDP and trade figures all underwhelmed. Weakness in global stocks have also weighed on the currency and it’s made fresh lows on a number of crosses. The Reserve Bank of Australia left the official interest rate unchanged at its meeting on Wednesday, but maintain an easing bias. That being said, the weaker AUD is doing some of the work of a rate cut for them. Next week we get data on mortgage lending, business and consumer confidence, and unemployment. Ahead of all that is tonight’s US employment data, which is key for the Fed in deciding when to start tapering asset purchases.

New Zealand
It’s been a quiet week on the domestic front, with the only fundamental news of note being a drop in dairy prices at the regular auction. This does bring into question Fonterra’s forecast of a $7 pay-out for the 2013/14 season. Aside from that, all the driving forces in the currency have come from offshore. The NZD has been weighed down by a very heavy Australian dollar, combined with weak equity markets around the globe. The expected pick up in volatility across all asset classes is most definitely underway and I get the feeling it’s here to stay. There is a raft of second tier data out next week, but the focus will be on the Reserve Bank’s interest rate decision on Thursday.

United States
The US has seen a bit of a mixed bag on the economic data front this week. This hasn’t helped the market in coming to any consensus as to a likely timeframe for the Fed to start scaling back asset purchases (removing the stimulatory economic packages they currently have in place). Key to that decision is the employment market, and we get figures on that tonight. Forecasts for the employment data have been revised down over the last few days on the back of some softer indicators. The Fed’s own assessment of the economy was released on Wednesday and was reasonably upbeat. They see the economy expanding at a modest to moderate pace. Stock markets are getting the jitters as the prospect of support from quantitative easing being withdrawn starts to weigh. Next week we get data on retail sales and consumer confidence to through into the mix.

Europe started the week with better readings across the board from the manufacturing sector which led to an increased demand for the EUR. The rest of the week’s data was largely uninspiring, coming in either on, or just under, expectation. The EUR however remained well supported all week. Last night’s ECB rate decision provided no major surprises as they left rates unchanged. It did see an increase in demand for the EUR though as president Draghi said growth should return and more stimulus measures would be ‘left on the shelf’ for now. The bank also said conditions since May hadn’t changed enough to warrant further action, but they stand ready to act in the future if needed. Along with the spike higher in the currency, Spanish and Italian bonds sold off. Next week sees a lighter economic calendar for Europe with the main highlight being inflation data.

United Kingdom
It’s been a good week for the economic outlook in the UK. They completed a trifecta of better readings on surveys from the manufacturing, construction, and service sectors. The service sector in particular showed solid gains, and as it’s the biggest sector of the UK economy, it’s had a big impact on the currency. The surge in demand for the GBP has seen it outperform most other currencies. As widely expected the Bank of England left monetary policy unchanged at their meeting last night. Governor King now hands the reins over to Mark Carney whose timing couldn’t be better. It looks like he’s going to jump into the hot seat just as things start to seriously improve. The UK pound had a horrible time for the first three months of 2013 when it depreciated almost 9%. Although it’s recovered some ground lately, there is plenty of room for further appreciation. Further gains will obviously be data dependant, but the broad trend in the economy seems to be one of gradual, yet sustained, improvement.

This week has been a quiet one for Japan with no major fundamental news or economic releases hitting the wires. Next week will provide a lot more for the market to focus on however, with GDP, trade data, and the Bank of Japan rate decision all set for release. The lack of major data this week didn’t do anything to diminish volatility though. The Japanese stock market seems capable of moving 3-5% in a heartbeat, and the JPY that broke back below 100.00 to the USD earlier in the week traded under 96.00 last night. The only thing we can be sure of is that in the near term we will continue to see wild moves in Japanese stock, bonds and the Yen.

There have only been two notable pieces of data released this week for Canada and both printed surprisingly strong. The first was building permits that came in at +10.5% against and expectation of a 3% fall! Widespread plans to build apartments and condos seem to have lifted the numbers which won’t impress policy makers who have repeatedly warned of overbuilding. The second piece of data was a survey on economic activity which jumped from 52.2 to 63.1. This has served to underpin the CAD this week and it’s performed well against most other currencies. Tonight sees the release of Canadian employment data which will be closely watched.