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Economies of note this week- 27 July 2012

Written by Sam Coxhead on July 27th, 2012.      0 comments

5:26 PM (NZT) The Australian Economy:
In Australia the primary focus for this week was the 2nd quarter inflation number released on Wednesday. The market certainly was biased towards a lower number, as has been the trend globally of late. The +.5% number was again an expectation of a +.6% number. It was high enough to force the expectations of further easing to the cash rate to be pared back for the time being. Next week sees the latest building numbers, retail sales and trade balance numbers due for release and these will be closely watched.
 
Of note was a forecast by a prominent Chinese adviser that 3rd quarter Chinese growth would likely dip to 7.4% from the 7.6% recorded in Q2. This coupled with the  early week increased risk aversion driven by Europe saw the AUD under pressure at times. Subsequently, wider market demand for the AUD materialised following the strong Euro-zone support pledged by the ECB head Draghi in a speech overnight. In the short term, this commitment from the ECB should under-pin the AUD demand as its supports global economic stability and growth.
 
The US Economy:
This week has been a mixed one for the US economy. The housing market activity has continued to increase, if not quite to the levels analysts had forecast. The weekly jobless claims numbers retreated nicely, but this was balanced by a number of large corporate that missed earning targets for the reporting season. The focus for the week ahead comes later on today with the advanced GDP numbers for the 2nd quarter due to be announced. Next week sees the FED make their monetary policy decision on Wednesday , ahead of the all important employment numbers Thursday. Expect the FED to leave monetary policy unchanged at their meeting, giving themselves further time to see how the current environment plays out.
 
The UK Economy:
The focus for this week in the UK was the preliminary 2nd quarter GDP numbers that were released on Wednesday. This number was a very disappointing -.7% against an expectation of a .2% fall. This is the third consecutive quarter of contraction within the economy and will put further pressure on policy makers to come up with further initiatives to spur growth. Ironically since the initial weakness following the release of the number, the GBP has seen rapid demand following the comments from ECB head Draghi overnight. Next week sees the BOE the focus. They are likely to announce no changes to their monetary policy at this meeting, but any comments from the BOE members in the coming weeks will be closely watched.
  
The New Zealand Economy:
This week in New Zealand saw the RBNZ leave the cash rate unchanged at 2.50%  as widely expected. The brief accompanying statement was identical in its tone to the previous rhetoric from the central bank. The domestic economy is uninspiring but the Christchurch rebuild will slowly generate momentum. Unless there is complete calamity in Europe, expect the cash rate to remain changed in the coming months, probably well into 2013. Next week is relatively quiet with just the NBNZ Business Confidence Survey as a focus on Tuesday.
 
The Canadian Economy:
It has been an interesting week in Canada. A Chinese bid for rival oil sands operator Nexen to the tune of 15 billion CAD underpinned demand for the week. Wednesday’s retail sales number has been economic data focus for the week and saw a good result in +.5% against the market expectation of a .1% rise. Next week sees the monthly GDP number released and this will be the focus for the week.
 
The Japanese Economy:
The Japanese finance officials have been active on the newswires again this week. Not only has there been of intervention in the market to sell Yen to curb its strength, but also of further quantitative easing to spur economic growth.  The strength of the YEN is a constant threat to Japan’s path to recovery and it certainly would not surprise to see increased initiatives in the coming months. Retail sales numbers also disappointed for the month and inflation came in at the expected -.6% level. Next week sees industrial production and household spending numbers due for release, but expect this to be of limited impact on the demand for YEN.
 
The European Economy:
This week has seen manufacturing and services numbers come in under expectations in Europe. Also leaning on sentiment were lower German Business confidence numbers on Wednesday. Early in the week the debt markets were again showing signs of increased stress. Spanish and Italian yields pushing higher to record levels before ECB head Mario Draghi rode in to save the day overnight. See below of further details on what transpired, but it has certainly turned things around in the short term at least. Expect The ECB to expand further on their plans at their monetary policy announcement on Thursday next week. Ahead of that the Italian and Spanish bond auctions on Monday will be closely watched. A further retreat in bond yields from what has transpired overnight would express the markets respect for Mr Draghi’s intentions.
 
Of note:
Overnight the market risk aversion was substantially turned around by comments made by ECB head Mario Draghi during a speech in London. The week of climbing costs  of Italian and Spanish funding has obviously spurred this somewhat dramatic action. Draghi stated to a group of investment bankers that “Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough”. In what form this support comes in remains up for debate. Never the less in the short term, the exiting of sold EURO positions has occurred at rapid pace. This fed through to wider market risk appetite to help boost equities, commodities and the growth assets that saw pressure earlier in the week.
 
This came after yields in Germany, the United States, the United Kingdom, Japan, Canada and New Zealand all saw record low levels. This is an indication of the level of risk aversion at play, and would have contributed to the ECB move to try and stablise the wider European market in an attempt to draw investors back to the region.
 
Topics: Economic news
 

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