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Economies of note this week: 16 Nov

Written by Sam Coxhead on November 16th, 2012.      0 comments

4:13 PM (NZT) Australia
It has been a relatively quiet for economic news in Australia. Second tier numbers see home loan and wage prices close to expectations, flat business sentiment, but improved consumer sentiment. Credit ratings agency Moody’s has confirmed Australia’s AAA credit rating and stable outlook. Moody’s commented that Australia has strong Government finances, stable politics, and it is likely that Chinese growth will continue to support the Australian commodity export sector. Next week sees the focus come on Wednesday, when the RBA release the minutes from their last monetary policy meeting when they left their cash rate unchanged at 3.25%.
New Zealand
The story in the NZ economy this week has been the continuation of horrible 3rd quarter data. Following last week’s employment numbers, retail sales figures materially underperformed market expectations coming in at -.3%, and the news does not bode well for the GDP figures due out in December. The chances of further easing to the already low 2.50% cash rate have increased. The question is now whether or not the RBNZ and new Governor Wheeler wait for the confirmation of a contraction in Q3 GDP before lunging towards a lower cash rate. Ironically the anecdotal evidence in the current economy points towards increasing confidence. Property markets in the upper north island have improved markedly and the momentum in the Christchurch rebuild is gaining pace.
The United States
It has been an interesting week so far for the US economy. The budget deficit was worse than expected for October and retail sales contracted by a higher margin than anticipated. The minutes from the latest FED monetary policy meeting acknowledge the pending “fiscal cliff” and the risk it represents across the economy in the short term at least. Overnight saw weak jobless claims and manufacturing index numbers. Some of the weakness was attributable to super storm Sandy, but there was an underlying weakness and this saw the share market lower and the US dollar in further demand. Next week is relatively quiet with housing and building numbers dominating economic news.
Explanation of the “Fiscal Cliff” – The “fiscal cliff” is a term used to describe the situation the US face come Jan 1st 2013. Current legislation sees the end of last year’s temporary payrolls tax, the end of certain tax breaks for businesses, the end of tax cuts from 2001/03 and the beginning of increased taxes related to Obama’s health care reform. At the same time spending cuts are to come into action as part of the agreement when last year’s debt ceiling agreement was struck. So in a nutshell the “fiscal cliff” currently starts Jan 1st 2013, and means increased taxes and lower Government spending. The  dramatic combined effect would be a fall in US economic activity, that would likely push the flailing US economy back into recession with harsh consequences for a vulnerable US, and global economies.  Compromise is needed, and this is where President Obama  and the Republican led Congress to agree on changes to the legislation to mitigate the serious situation.
The United Kingdom
This week has been interesting in the UK. The monthly inflation numbers were higher than expected and put the yearly rate at an uncomfortable 2.7%. Unemployment claims numbers also increased, but the unemployment rate dropped indicating increased labour market activity. The latest Bank of England (BOE) inflation report reveal revised downgrades of near term growth forecast, whilst increases in expected inflationary pressure. The BOE continue to ponder the requirement of further stimulation, in what would have to be a finely balanced program. Retail sales numbers we materially weaker than expected for October, which appears to be an increasingly global theme. Of indirect impact will be the better than expected European growth numbers for the 3rd quarter, and will hopefully be a boost for sentiment in the UK. Next week sees the release of the monetary policy meeting minutes as the focus in what is a relatively quiet week for news.
The Eurogroup look to be making a decision on the next, or possible, bundling of bailout funds to Greece next week. This week has been relatively positive for economic data, with the GDP number contracting less than expected and the German and French economies able to stay in positive territory for the 3rdquarter. Inflation remains anchored, for the time being at least, and came in on expectation at 2.5%. Whilst it has been a relatively positive week for data, and the EURO, sentiment numbers continue to decline and the anti-austerity demonstrations continue across Europe. The focus will be on Greece next week, with the market looking for confirmation of the latest tranche of bailout funds being lent.
Preliminary Q3 GDP numbers released on Monday were weak at -.9%. These saw the increased likelihood of further stimulatory measure from the BOJ. Japanese PM Noda surprisingly announced a deal to clinch a budgetary impasse, but also resulted in a snap election on Dec 16th. This has led to a period of YEN weakness, increasing volatility after last week’s bounce in YEN demand. In what will be a likely change in leadership, increasing appetite for stimulation for the economy will also likely be an outcome of the election. Next week the BOJ have their latest monetary policy announcement, with no changes expected at this meeting after their recent increased activity.
It has been quiet week for news in Canada with just monthly manufacturing numbers revealing +.4% growth. The CAD saw increased demand following the release of the FED monetary policy meeting minutes suggesting further policy accommodation could not be ruled out. Next week sees a return to top tier focus with the latest retail sales and inflation numbers due on Thursday and Friday respectively.