There has been little in the way of top tier economic news in Australia this week. Today’s private sector credit numbers show an annual increase of 3.9% and this was slightly higher than the previous number. Of direct influence were the latest Chinese manufacturing numbers that came in just below expectation. These numbers have coupled with the wider market risk aversion to undermine demand for the Australian dollar on most pairings this week. Next week will be interesting, with the RBA monetary policy announcement on Tuesday followed by the latest retail sales and business confidence data on Thursday.
This week the economic news has been all about the RBNZ monetary policy announcement. After the recent higher than expected inflation number, the market had priced increased odds of a hike from the emergency low 2.50% cash rate. However, this was unlikely because the RBNZ are more inclined to initiate a hiking cycle in March, when it had its full Monetary Policy Statement (MPS) to communicate - as opposed to its brief bi-meeting official cash rate review statement. At anyrate, the NZ dollar has struggled since the announcement with speculative investors exiting bought NZD positions. It seems a near certainty that the initial hike will be forthcoming in March, with around 2% of hikes coming over the next 12 months. The emergence of global fears over emerging market economies represents a risk to the RBNZ policy progression that will be monitored throughout the coming months. RBNZ Governor Wheeler spoke this afternoon and reiterated that they will raise the cash rate soon, and that the high NZD was a headwind for growth. Next week’s focus will come from the 4th quarter employment numbers on Wednesday.
It has been a busy week for economic news in the US. The Federal Reserve announced the expected 10 billion per month tapering of their quantitative easing program and show a commitment to looking through material global impacts in doing so. This QE tapering process will continue to have far reaching impacts throughout 2014, but is a necessary step in the recovery of economic conditions. Yesterday saw the latest GDP numbers come in at expectation, with the economy growing a strong 3.2% in the 4th quarter. Interestingly, amongst the QE taper and the good growth numbers, longer term interest rates have moved lower, as risk aversion increased in the wider markets. Next week sees the focus provided by the latest non-manufacturing numbers on Thursday ahead of the all important employment numbers on Friday.
It has been an interesting week for the European economy. Whilst better than expected German business sentiment numbers will have been welcomed, the lower than expected German inflation numbers are of concern ahead of the European inflation data due for release later on today. With deflation becoming an increasing risk, there is potential for policy adjustments at the ECB monetary policy meeting next week on Friday. Before then the market will have to digest the latest manufacturing, services and retail sales data. The constant shadow over sentiment in the form of the Greek funding debacle re-emerges as officials from the ECB, EU and IMF head to Greece in the coming days. After constantly missing targets, the inability of Greece to get its house in order is of growing frustration for the bailout participants. This situation will remain a bugbear in the coming quarters and tax sentiment in the fragile recovery that is currently underway.
Tuesday saw the release of the preliminary 4th quarter GDP numbers in the UK. The 2.8% annual growth rate was bang on expectations and re-iterates the solid recovery underway in the UK. Next week sees the Bank of England (BOE) monetary policy announcement on Thursday of primary focus. However, no change is expected to monetary policy at this meeting with Governor Carney this week commenting again that “the recovery has some way to run before interest rates change”. Also of note next week in the UK are second tier manufacturing, construction, services and industrial production numbers.
Monday’s Bank of Japan (BOJ) monetary policy meeting minutes revealed board wide agreement that their aggressive easy policy initiated in April has shown cumulative effects on the economy and there is currently little need for additional steps. It was noted that the policy effects “continued to firmly take hold, and financial conditions were easing steadily to underpin firms’ and households’ spending”. However, yesterday revealed the latest retail trade numbers were weaker than expected. Todays releases showed that inflation is running at 1.2% and came in against the expected figure of 1.2% year on year. Next week is light on economic news, with the BOJ’s monthly economic survey on Friday of primary focus. Of note this week has been the resurgence of YEN demand thanks to the risk aversion driven by negative sentiment in the emerging markets.
There has been little in the way of economic news in Canada so far this week. Of note was the CAD’s fall against the USD to its lowest levels since 2009 ahead of the FED’s monetary policy announcement. Later on today the November GDP numbers will be released. The market expects .2% growth and this comes after a .3% number in October. Next week will see the focus move to the January employment and PMI numbers. The CAD sentiment is being primarily driven by the “dovish” comments from Bank of Canada Governor Poloz. Gov. Poloz has made it clear that he does not intend to raise interest rates in the short term at least. Until the employment market turns around, expect this stance to continue.