5:00 PM (NZT)
Market Overview:The improvement in sentiment seen in the wider market continued for the most part last week. The recent significant programs from the European Central Bank (ECB) and US Federal Reserve (FED) were joined by re-energised stimulatory efforts from the Bank of Japan (BOJ). The competitive debasement of currencies has not been uncommon since the onset of the global financial crisis and can be expected to continue as the global economy continues to stagger towards a sustainable recovery. The US dollar pared back some of its recent losses last week, as geo-political risks in the Middle East and Asia flared. In Europe the stablisation of the debt markets remains in place for the most part, although further questions about the fiscal positions of Spain and Italy are likely to re-emerge overtime.
AustraliaThe Reserve Bank of Australia (RBA) monetary policy meeting minutes last week confirmed their openness towards further lowering of their cash rate as the economy slows. Expect between 25 to 50 points of easing in the three remaining monetary policy announcements before the end of 2012. A lowering cash rate should undermine demand for the Australian dollar, and balancing this will be the increased demand emerging from the efforts of the major central banks. On a positive note last week, credit agency Standard and Poor’s re-affirmed Australia’s AAA credit rating. The IMF also issued comments on the Australian economy, stating expected growth for 2013 at 3.25% and a broadly favourable outlook. Of indirect influence were the latest HSBC Chinese Manufacturing survey numbers that confirmed a 15th straight month of contraction within the sector. But the pace of contraction is slowing, and this points towards a stablisation of conditions. This week is relatively quiet for Australian economic data, with private sector credit numbers on Fridays of note, but likely of limited impact to price action.
New ZealandA further rebound in global diary prices, coupled with solid NZ 2nd quarter GDP numbers helped boost demand for the New Zealand dollar last week. The increased activity in the second quarter was led by the increased diary revenues and boosted construction activity centered around the Christchurch rebuild. With just Thursday’s NBNZ business confidence numbers due for release in New Zealand, expect the wider market risk appetite to set the tone for the NZ dollar performance this week.
United StatesLast week saw a rebound in demand for the US dollar as geo-political tensions increased in Asia and the Middle East. Housing, construction and manufacturing numbers were close to expectations, while a boost in the highly regarded manufacturing indicator, the Philadelphia FED Manufacturing Index saw a smaller contraction than was forecast. Interestingly, various FED officials hit the news wires with debate around latest quantitative easing (QE) program. Next week’s FED monetary policy meeting minutes should be interesting, indications are that not all board members were in favour of increased program. This week lacks top tier data releases, but consumer confidence and durable goods sales numbers will be closely watched. More likely the lead for the US dollar will come from any sentiment changes in Europe, and those effects on EURO demand.
EuropeBusiness sentiment numbers showed a good rebound from somewhat depressed levels last week. This will be encouraging to the ECB, as it offers encouragement that their efforts to stablise the economy are starting to work. European manufacturing numbers remain patchy. Germany has seen a pickup in activity whilst the rest of Europe remains at somewhat depressed levels. This ties in with news from Germany that tax revenue number are ahead of forecast, pointing towards increased spending ahead of next year’s elections. ECB rhetoric towards a lower European cash rate seems to be simple jawboning as any further easing of the cash rate is unlikely with inflation remaining at relatively elevated levels. The lastest inflation, employment and consumer spending numbers are due this week and provide the focus.
United KingdomUK inflation numbers revealed stubbornly high price pressure last week. This news came as the Bank of England (BOE) monetary policy meeting minutes revealed strong internal debate about the recent policy easing, and the influence in inflation. Retail Sales numbers were surprisingly strong, and encouragingly the detail backed up the headline number. The Government deficit numbers on Friday revealed a record budget deficit for August. Interestingly, last week BOE Governor King stated that increased budget deficit numbers could be tolerated in the short term to help stablise growth prospects. This week is a quiet one for UK economic data, with just current account numbers on Thursday to provide the focus.
JapanThe BOJ went on the offensive last week, increasing their QE program more aggressively that market forecasts. The immediate reaction was a weaker YEN, but unfortunately the weakness was short lived as the tensions with the Chinese over disputed Islands pushed demand for YEN. BOJ Governor Shirakawa commented that the global slowdown was intensifying and this had seen the Japanese economy stall. Uncertainty remains high in the global economy and with such conditions persisting the BOJ would continue with further QE programs when required. Earlier today the minutes from the monetary policy meeting were released. These revealed much of the same rhetoric as recently seen, and reiterates the BOJ commitment to helping stimulate growth, and as a conscious byproduct, trying to undermine demand for the YEN. Household spending, inflation, industrial production and retail sales numbers on Friday round out what is a relatively busy week for news in the Japanese economy.
CanadaLast week was a quiet one for Canadian economic news. Fridays inflation numbers were the sole focus and these came in at +.3% for the month as expected. This week proves to offer more interest with retail sales numbers on Wednesday, ahead of the monthly GDP number on Friday. The Canadian economy continues to just bubble along due to the slow recovery in important trading partner and neighbor the US. As things across the border improve, so will expectations of Bank of Canada increases to the cash rate. For this reason expect the US news to continue to drive direction for the CAD.
Major Announcements last week:
- Fonterra dairy auctions sees a 2.4% boost, on traded weighted basis
- NZ GDP +.6% vs +.4% expected
- RBA Minutes reveal an openness to further easing of the 3.50% cash rate
- UK Inflation 2.5% as expected
- German Economic Sentiment -18.2 vs -19.2 expected
- BOJ adds to QE program
- US Existing Homes sales 4.82m vs 4.57m expected
- HSBC Chinese Manufacturing 47.8 vs 47.6 previous
- European Manufacturing 46.0 vs 45.6 expected
- Canadian Inflation +.3% as expected