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Economies of note so far this week:

Written by Sam Coxhead on February 8th, 2013.      0 comments

4:50 PM (NZT) Australia
It has not been a week for positive news in the Australian economy. Retail sales and building approval’s both undershot economist’s expectations. However, the trade deficit was lower than expected but this was not enough to balance the weakening jobs market where the headline increase in the number employment was driven by increasing part time jobs as over 9,000 full time jobs were lost. The RBA decided to leave the cash rate unchanged at 3.00% as expected. Interestingly, they have left the door open to further easing if required, and this also will help undermine demand for the AUD as it remains as somewhat elevated levels. Today’s quarterly Monetary Policy Statement from the RBA saw there assumptions for the economy move both growth and inflation indicators lower. They adjusted growth down from 2.75% to 2.50% on 2013. The stubbornly high Australian dollar has been to blame holding back economic growth, but also keeping a lid on inflationary pressure.
 
New Zealand
This week the focus in New Zealand has been on the labour market. The quarterly labour cost index revealed a .5% rise in labour costs in the 4th quarter, and this was exactly as economist expected. Yesterday’s 4th quarter 2012 employment numbers made for sobering reading. A 1.0% fall in the number employed was a dramatic fall, as the young turned to study, and the elderly turned to retirement in the face of lowering employment prospects. This shrinking employment market is  further sign of the slowing economic momentum in the latter half of 2012. Given the surprising demand for the NZ dollar in the early part of 2013, the economic fundamentals should serve as a reminder that growth is likely to be staggered at best in the coming quarters. Also of note were the results from the latest Fonterra Global Dairy Trade auction results. A healthy 2.4% increase in prices fetched will be of relief to dairy farmers. Coming after concern over the minute levels of DCD found in NZ milk products, passed through from a fertiliser additive. Next week sees just the 4th quarter retail sales number on Friday provide a domestic focus for the NZ economy.
 
The United States
It has been a relatively quiet week for economic news in the US. Services sector numbers outperformed expectations, and labour costs were recorded higher than expectation. The trade balance is out later on today in the US session, and this number will be closely watched. Of note were comments from Fed Governor Evans. He commented that the Quantitative Easing (QE) program could be withdrawn before the unemployment rate reaches 7.00%. This had been a target in recent FED discussions ,and the comments come of a surprise as Evan’s is a noted advocate of QE. The prospect of an earlier than expected wind down of the QE program would undoubtedly be US dollar positive. The US dollar saw good gains in the offshore session as a result, aided by a weaker EURO following seemingly benign comments from ECB head Mario Draghi. Next week will see retail sales, industrial production and consumer sentiment number provide the focus.
 
The United Kingdom
It has been an interesting week for British economic news. Construction numbers were slightly lower than expected , but services and manufacturing numbers were stronger than the market expected. The BOE left monetary policy unchanged, but issued a surprise statement with the decision (normally no statement unless change made). They will reinvest the current QE proceeds as they roll off (buy new Govt bonds as the previously bought bonds mature), and will provide further stimulation if the economy needs it. They are comfortable will letting inflation travel about the 2% target in the short term, as the risk of withdrawing stimulation too early outweighs the costs. They also expect medium term inflation to come back into line. Also of note was the meeting of incoming BOE Governor Carney and the Treasury select committee. Whilst his statements did were not game changing, he said any suggested change in monetary policy administration is likely to take time. The GBP saw strong demand at times following this testimony, and took back some of its recently lost ground on most pairings. Next week sees the releases of the latest inflation and retail sales numbers provide the focus.
 
Europe
Earlier this week the monthly European retail sales number mirrored those in other economies with its weakness. From there the focus turned to last night’s ECB monetary policy announcement. The unchanged decision was widely expected , but the accompanying comments with regards to the increased value of the EURO seems to have rattled confidence of investors. The EURO came under periods of intense pressure as ECB head Mario Draghi stated that the inflation risks had reduced with the higher EURO. It will take time to see if the EURO is able to consolidate at the recently elevated levels. If it is able to maintain much of the recent gains, further easing to interest rates from the ECB may become a possibility, but at this stage that remains to be seen. Next week will sees Thursday’s 4th quarter GDP number of primary focus, but industrial production numbers on Wednesday will also be closely followed.
 
Japan
This week has been a very quiet one for economic news in Japan. Of note has been the increasing domestic and international discussion of the recent policy initiatives in Japan. Japanese authorities are on the PR offensive, consciously trying to curb rumours of “currency wars” and alike. It does seem like there will be increasing focus on these policies in the coming months and beyond. Next week sees a return of focus to the economy, with preliminary GDP numbers due on Thursday, and these come ahead of the BOJ’s monetary policy announcement.  
 
Canada
The mixed fortunes of the Canadian economy continues this week. Stronger than expected manufacturing numbers well balanced out by disappointing construction data. Later on today in Canada will sees the release of the latest trade balance and employment numbers. These will both be very closely watched. Next week will be a quiet one for economic news. A speech by outgoing BOC Governor Carney will provide the primary attention, as he speaks to the House of Commons Standing Committee on Finance.
 

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