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Economies of note : 26 Apr

Written by Sam Coxhead on April 26th, 2013.      0 comments

4:40 PM (NZT)
The New Zealand Economy.
The main focus for NZ this week was the Reserve Bank interest rate decision on Wednesday. Although no change in the cash rate was widely expected it was what was said, or to be more specific, not said, that caused the most reaction. It seems the market was expecting a much stronger stance on level of the NZD than Governor Graeme Wheeler actually delivered, and that has caused a decent reaction in the currency. Previous threats of a rate cut should the currency continue to strengthen were nowhere to be seen in the text of his release, with references to the currency being ‘overvalued’ were as strong as it got. Inflation continues to remain subdued, of larger concern for the Reserve Bank being the continued heat in the property market. The only data of note next week will be building permits and business confidence.

The Australian Economy:
It has been a relatively quiet week on the economic data front for Australia with the main focus being the release of the consumer price index for the first quarter of 2013. It came in well below expectation at 0.4%. With inflation not proving to be of any concern, it gives the Reserve Bank of Australia plenty of room to cut rates later this year should they feel the need to do so.  The markets are certainly pricing in a good chance of this, and continued slowing of the Chinese economy will only serve to increase expectation.  Tuesday’s release of Chinese manufacturing PMI at 50.5 (only mildly expansionary and against an expected 51.5), did nothing to alleviate fears that the one of the biggest supports for the Australian economy over the last few years is slowly being whittled away.

The United Kingdom economy:
The UK economy is finishing the week on a brighter note with the key GDP numbers surprising to the upside. There was a lot of talk previously about the chance of a triple dip recession, but that has been put to rest with a better than expected result of 0.3% for the first quarter. Second tier data out earlier in the week was on the soft side but this was overshadowed by the announcement from the Bank of England that they are extending and expanding their Funding for Lending Scheme (FLS). The scheme has been extended by a year, and expanded to include whole range of institutions that lend to businesses who will now be eligible for cheap funding from the BOE. Although not a game changer for the UK economy, FLS announcement combined with the GDP figures make any further quantitative easing in the near future a lot less likely. The big unknown though is what impact the new incoming BOE governor, Mark Carney, will have when he takes the reins in a couple of months.

The European economy:
The past week has seen many European economists change their calls for next week’s ECB rate decision meeting to a 0.25% cut from a previous no change expectation.  This is as a result of continued soft data and tone of commentary from members of the governing council. Two key data releases this past week underscored that expectation. They were the Euro Zone PMI for services and manufacturing, and German IFO. Both of these came in significantly weaker than expectation. The Euro Zone PMI was pulled lower by the German component, and that combined with the weak business confidence readings of the German IFO will be a big worry for the ECB. Germany has been the only bright spot in the Euro Zone since the crises began, but it seems now that they too are being dragged down and that may be enough to see the ECB act. How much of an impact cutting rates from 0.75 to 0.50 will have is a debatable point, as a lot of Europe’s issues are the result of major structural problems.

The United States Economy:
The US has seen mostly weak economic data out over the past week, with the only bright spot being unemployment claims which came in better than expected at 339,000. That’s the second lowest level in more than 5 years. Although it might signal a better non-farm payrolls figure next month, it comes on the back of weaker than expected home sales data and very average durable goods numbers that will be of concern for policy makers. The general run of soft economic data since March will only serve to support the continuing quantitative easing programme by the FED, and take gloss off what markets are expecting to be a solid first reading of US GDP figures out on Friday night.

The Canadian Economy:
A positive week for the Canadian economy with two data releases underpinning a relatively stable outlook. Firstly, and more importantly,  were retail sales for February which came in at a strong 0.8% against and expectation of 0.3%. This was backed up yesterday by better than expected average weekly earnings.  On a relative basis the Canadian economy is in pretty good shape. Governor Carney’s last scheduled testimony before parliament didn’t deliver anything ground breaking. He believes the economy is strong, but still faces some risks. The most notable of these are the high levels of debt Canadians hold, and the elevated level of the housing market. In his own words ‘it’s not the right time for a family to stretch finances and buy a house.’ This coming week sees the release of key GDP figures as well as international trade data, and it’s safe to say the market is expecting both figures to underline what has been a solid stable recovery.

Topics: Economic news