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Economies of note this week : 25th Jan

Written by Sam Coxhead on January 25th, 2013.      0 comments

3:59 PM (NZT)
The main focus for the Australian economy this week has been the lower than expected 4th quarter inflation number. The .2% rise in inflation came in under the .4% expectation level. This leaves the door open for further easing’s from the current 3.00% cash rate, that has fallen from 4.75% since November 2011. The current market pricing has around a 40% chance of an easing at the next RBA monetary policy meeting on February 5th. An easing would certainly go some way to undermining demand for the Australian dollar. Conflicting external factors have seen the AUD range bound on most pairings this week. The equity markets are at, or close to, five year highs (AUD positive), while growth expectations for 2013 have already started to be pared back by the likes of the World Bank and IMF (AUD negative). Next week sees business confidence, private sector credit and producer prices provide the focus, whilst the majority of the direction for the AUD will come from external factors.

New Zealand
It has been a quiet week for news in the New Zealand economy, with little in the way of top tier data. The BNZ Manufacturing Index revealed a small bounce in activity. Notably the index bounced back into "expansionary territory" at 50.1 (a reading below 50 means sector contraction). Next week the focus is solely with the RBNZ monetary policy announcement on Thursday. No changed is expected in policy, but as usual the accompanying statement will be closely monitored. This is especially the case when relatively a new Governor is in place, such as Graeme Wheeler is now. It would not surprise to see a reference to the continuation of the NZD to trade at elevated levels. There still appears to be latent demand for NZ dollars in periods of any softness. The NZ Government bond markets remain active, and this points towards ongoing appetite of offshore investors, in accessing the relatively high yields of NZ interest rates.

The United States
The corporate earnings season has dominated much of the focus this week in the US. Mainly good results have been forthcoming and the stock markets have reacted positively to forge new five years highs. Whilst the 4th quarter economic data has not been great in the US, the earnings results are positive. Overnight the latest manufacturing index was materially better than expected. Also of note is the acceptance of the Republican proposal to delay a decision on the debt ceiling issue. This offers three months of temporary relief before the issue has to be dealt with again. Further housing numbers are due later on today ahead of a busy run of economic data next week.  Durable goods sales, consumer confidence, advanced 4th quarter GDP and employment results are all due, in what will be an interesting and no doubt volatile next week.

The United Kingdom
It has been an interesting week for the UK economy so far. Wednesday saw BOE Governor King state the option of further quantitative easing ("QE" - printing money) remains open. This comment slightly contradicted the BOE minutes from the previous monetary policy meeting where some policy makers question the value of further QE. To my mind the BOE will continue to “consider” further QE as an option as long as the economy could benefit from further weakening of the GBP. The latest employment numbers showed an improvement with 12 thousand less unemployment claims and a fall in the unemployment rate from 7.8 to 7.7%. With the resurgent EURO seeing improved sentiment, the GBP looks destined to remain under some pressure  as the repatriation of capital from the UK to Europe continues. Interestingly, Prime Minister Cameron has announced a referendum on EU membership as his support of the EU comes under further fire in the polls. Whilst this may not take place for a number of years, economically it could negatively impact as investment certainty lowers in the interim. Later today GDP numbers will be very closely watched. Next week sees Friday’s manufacturing index provide the primary focus in a quiet week for economic news.

Whilst the European economic data remains under pressure, it is important to note that sentiment continues to improve in 2013. Further evidence has been seen this week as Portugal offered 2 billion worth of bonds and received bids from the market for a massive 10 billion. Also the latest German Investor confidence numbers jumped  to levels not seen since May 2010. Last night saw the manufacturing index realised, and this was a positive result with strength in Germany outweighing weakness seen in  the French sector. Next week sees the latest inflation and unemployment numbers released and these provide the primary European focus.

It has been a period of intense focus on the Japanese economy. The market seems to have taken time to digest the implications of the BOJ’s ultra stimulus plan released on Tuesday. A new 2% inflation target and open ended QE program ("QE" - printing money, to weaken the YEN) was widely expected, but the market’s reaction has been curious to say the least. Initially the YEN gained 1% in value in what is a “sell the rumour buy the fact” response. Since then things have settled down and the YEN has resumed its weakening trend.  Inflation numbers are expected later today, and these come ahead of retail sales, industrial production and household spending data next week.

It has been an interesting week for the Canadian economy. The latest retail sales numbers again disappointed with a -.3% result against an expectation of the +.1% number. The BOC left monetary policy unchanged as completely expected, but lowered their growth expectations for 2013 from 2.3% to 2.0% . In doing so their guidance for cash rate increases also saw the need for rises become less imminent, meaning it has been pushed out into 2014. Inflation numbers later today round out the week and next week sees the sole focus on the GDP numbers on Friday.
Topics: Economic news