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Economies of note : 31 May

Written by Sam Coxhead on May 31st, 2013.      0 comments

3:35 PM (NZT)
There hasn’t been a lot in the way of economic data released in Australia this week, however what was released did have an impact. Capital expenditure data that initially looked bad, was actually not that dire once the detail was digested. Estimates on what businesses are planning to spend over 2013/14 are holding up pretty well. That was quickly followed by building approvals data that was much stronger than expected. The AUD saw a good pop higher on these figures. However the big picture for the AUD is little changed and any bouts of strength will provide good selling opportunities. Next week is a big one for economic data with retail sales, RBA monetary policy meeting, GDP and trade balance all set for release.
New Zealand
There have been a couple of positive releases this week for the NZ economy. Firstly was the announcement from Fonterra that they have increased the forecasted pay out for 2013/14 from $5.80 to $7.00. If that holds true, it would generate an extra $2bln for the NZ economy. Building permits were also strong coming in at 5 year highs. More interesting however, were revelations about the size of the Reserve bank’s intervention in the NZD. Governor Graeme Wheeler gave a speech yesterday where he outlined the risks for the economy. It was a no surprise affair as he talked about a housing bubble and an overvalued kiwi currency. He even went as far as saying the RBNZ stands ready to scale up their intervention activities, if they see opportunities to have greater influence. The currency fell a few points on this, but nowhere near as much as when he first mentioned it a couple of weeks ago. The real shock though, was the release of data showing just how much, or should I say little, the bank has actually sold. The bank sold a total of $256 million in April. That is an insignificant amount considering the daily market turnover of more than $10billion. It seems his naive attempt to jawbone the currency down could well have a negative impact on the credibility of the RBNZ. Recent NZD weakness has been in large part due to broad USD strength. If the currency heads back to its highs and the RBNZ doesn’t look to offer a realistic scale of intervention, Wheeler’s credibility will take a hit and may lead to a high path for the NZ dollar.
United States
The US had more solid data early in the week with consumer confidence coming in much stronger than expected, and house price data showing solid gains. This has kept the US dollar on the front foot for most of the week. However, last night saw the release of GDP and weekly unemployment claims. Both pieces of data were somewhat underwhelming. The USD has since given back some of its recent gains. The overall picture it still broadly positive for the US economy though. Next week’s data will be closely watched, and includes the all-important employment numbers on Friday. Prior to the employment data, there are releases in manufacturing and service sectors, as well as trade data. US long term interest rates have seen increased volatility lately as yields rise in line with the improving outlook. Japanese stocks have had another wild day falling 5.0% yesterday, but the US stock market seems unfazed by it all and remains firm. How long the US stock markets can last for at elevated levels in the face of lower levels of FED stimulation remains to be seen.
Germany had some soft numbers on employment released this week, but they were largely overshadowed by inflation data. Higher than expected inflation data for Germany has wiped out any potential of a move to negative interest rates by the ECB. It also saw European sovereign bond yields significantly move higher. The last few days have also seen comments from officials that seem to be dampening down any expectation of a rate cut and next week's ECB meeting. That being said, the ECB are certainly looking at ways to get credit flowing to small and medium sized business. What form that comes in remains to be seen. More interesting though, was an article published in a German newspaper this week. It said the German government was changing its attitude on austerity and bilateral aid. This could have major implications for the Euro and the continent. To date, Germany has been very inflexible on the implementation of austerity which many believe has caused a downward spiral in peripheral economies. A change in tone from Berlin, combined with a willingness to spend and allow neighbouring governments to spend could be the start of a real recovery. Something Europe desperately needs. Next week sees Euro-zone retail sales and German industrial production. But the focus will be on the ECB rate decision and press conference on Thursday.
United Kingdom
This week there hasn’t been much in the way of economic data to materially change the economic outlook for the UK. Some numbers on retail sales proved a little disappointing and the OECD cut its growth forecast for the next year. However consumer confidence came in somewhat better than expected. The OECD report did back the current budget cuts by the UK government, and they see the biggest drag on the economy being Europe. Next week has plenty for the market to digest with surveys on the construction, manufacturing, and service sectors set for release, along with the Bank of England monetary policy announcement.
Japan posted some better than expected retail sales numbers this week which has supported the more optimistic outlook going forward. Key inflation data came in on expectation, but there have also been better reading’s on a raft of second tier data. The bigger focus for the market has been the volatility in Japanese stocks and bonds. Long term interest rates have had some very choppy moves recently. This threatens to undermine the effects of the BOJ’s stimulus policies. The BOJ has now pledged to conduct bond purchases in a flexible manner to stem excess volatility. Stocks have made tremendous gains this year as a result of these stimulus policies. But as the recent one day fall of 7.3% shows, these gains are not built on fundamental economic strength. Yesterday saw more wild moves in stocks with the market ending down 5.0%. This volatility in stocks and bonds is a nasty side effect of the bold policy moves undertaken by the government and BOJ to end 15 years of deflation. We can only hope it doesn’t spill over into the wider financial markets.
The Bank of Canada rate decision this week saw them leave rates unchanged for the 32nd month running. There was a slightly more positive tone than in previous statements, and this has helped the Canadian dollar gain some ground. Although many in the market feel then next move in the cash rate will be up, no one is expecting any change until well into 2014. There are still big risks facing the Canadian economy, not the least of which is the housing market. We don’t expect any drastic change in policy from the new Bank of Canada governor Stephen Poloz, who takes over at the start of June.

Topics: Economic news