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Economies of note this week - 3 Aug 2012

Written by Sam Coxhead on August 3rd, 2012.      0 comments

7:16 PM (NZT)
The Australian Economy:
This week has been reasonably positive for the Australian economy. Firstly came building approval numbers that were considerably less weaker than expectation. Private sector credit numbers have held up and the July retail sales number showed a strong 1% increase in activity. The retail sales number was of the largest impact and pushed interest rates higher across the board. Supporting optimism was the news that the recent slump in the Chinese manufacturing sector seems to have stablised finally. No change is expected from the RBA at their monetary policy meeting on Tuesday, but their quarterly monetary policy statement on Friday will be closely watched. Thursdays employment numbers will likely be the data focus of the week, with the unemployment rate expected to stay at a comfortable 5.2%
The US Economy:

It has been an interesting week so far for the US economy and the primary focus of the employment numbers  is to be released later on today. The FED preferred inflation index has shown inflation to be below the 2% target at 1.8%. The latest consumer sentiment numbers reveal a welcomed bounce, with the index hitting 65.9 against an expectation of 61.5. Manufacturing numbers were slightly weaker than expected, mirroring UK and European data. The FED held monetary policy unchanged as expected on Wednesday, but remain poised to act if required later on in 2012. They expect to leave the record low 0-.25% cash rate in place further than their previous mid 2014 estimate. They remain frustrated by the slow recovery and seem to be focusing on the mortgage market as target for future stimulation. Tonight’s employment numbers round out a busy week in the US. Next week is relatively quiet in the US, so expect the focus to be provided by developments as they unfold in Europe.
The UK Economy:
It has been a mixed week for economic news in the UK. Following on from last week’s horrid Q2 GDP number , the latest manufacturing index shows the sharpest slowdown since mid 2009. On a more positive note construction numbers bounced back to growth after the previous months contraction. The BOE left monetary policy unchanged as expected. Next Wednesday’s inflation report from the BOE now becomes the focus, as it provides the BOE an ideal opportunity to verbalise their latest thinking on the economy. Expect the bulk of the lead to come from Europe as the build up to additional support from the ECB and European Stability Mechanism (ESM- EU bailout fund) starts to take place.
The New Zealand Economy:
This week has been a relatively quiet one for economic news in NZ. The latest Fonterra auctions were more buoyant than the previous couple with the average price rising 3.5%. Even with this positive swing the expectations for the 2012/13 payout are likely to fall from the current $5.50 to around the $5.10 level. Elsewhere the NBNZ Business Confidence survey revealed a slight recovery in sentiment from the previous 12.6 level to 15.1. Focus now turns to next Thursdays 2nd quarter employment numbers, and these are the sole focus in NZ next week. The NZ dollar has remained well supported for the most part this week, with international demand for NZ Government bonds remaining  relatively high. Ratings agency S&P issued a statement on Friday saying they affirmed the NZ credit rating and stated the outlook was stable.
The Canadian Economy:
The sole economic data focus in Canada this week was the monthly GDP number on Tuesday that was +.1% against an expectation of a +.2% rise. Next week sees a more active economic calendar to provide focus. Building and manufacturing numbers come on Tuesday, before trade numbers Thursday, and the all important employment numbers Friday.
The Japanese Economy:
It has been a relatively quiet week for economic news in Japan. Second tier industrial production, household spending and average cash earnings numbers were all a little softer than expectations. Interestingly the YEN has not seen huge demand which will be of welcomed relief by policy makers. Next week sees the BOJ’s monetary policy decision the primary focus. Expect no changes at this meeting, but further strong language with regards to the unsustainably strong YEN.
The European Economy:
The European situation has been the primary focus for the wider market this week. The ECB’s monetary policy announcement took centre stage with high expectations for aggressive policy adjustments to be announced in the coming months. ECB head Draghi delivered what could be called an underwhelming statement. Whilst the intention of a strong policy response to the stressed debt markets of Spain and Italy, actual action was less forth coming. The placing of political pressure back on respective national parliaments to ratify the use the of the European Stability Mechanism(ESM) to purchase stressed member bonds remains the key. The ECB plans to work closely with the ESM to provide crucial support to stressed debt markets, which would significantly lower the costs of funds for those nations requesting assistance. At any rate the focus now turns to political developments with regards to the ESM ahead of the next ECB monetary policy meeting on September 6th. The debate is centered around risk and burden sharing. The ECB having stated they are willing to do everything required of them to support stressed markets, so long as they get support from respective EU members, however politically unpalatable it may be. Expect the EURO to remain under pressure for the short to medium term at least, with any material strengthening likely to be years away, assuming the motivation remains to maintain the single currency.
Topics: Economics