4:57 PM (NZT)
The financial markets performed relatively well in what was an uncertain environment last week. Once the US election result was digested the focus quickly returned to on going issues in both the US and Europe. Ironically, global economic data was better than expected for the most part. But consternation remains relatively high as the US fiscal issue starts to heat up. Progress on Greek budgetary reform is positive, and the Spanish funding program has been completed for 2012. These two events take a little pressure of the European focus in the short term. The Asian growth profile remains mixed, but the signs are encouraging that China has managed to orchestrate a soft landing. The Australasian picture proved dynamic with the Reserve Bank of Australia (RBA) holding the cash rate at 3.25% for the time being and the NZ unemployment rate unexpectedly jumping through 7%.
AustraliaThe RBA’s decision to hold the cash rate steady saw a reasonable market reaction. It was unsurprising given the markets split expectations between an easing at that meeting or next months. The monthly retail sales and employment numbers were both slightly stronger than expected. Friday’s release of the quarterly RBA Monetary Policy Statement pointed towards a move at the next meeting to see a 3.00% cash rate to end the year. Also of note was an earlier and lower expected mining capital expenditure peak. More positively, of direct impact will be the continued stabilisation of the Chinese economic data, and its positive contribution to the Australian export sector over time. This week sees little in the way of top tier economic news due for the release.
New ZealandLast week saw the 3rd quarter employment numbers bounce the unemployment rate strongly higher to 7.3% from its previous level of 6.8%. The number indicates demonstrably weaker employment market conditions than had been previously seen, and points towards the possibility of an aberration in the data. But until the 4th quarter data comes to light, the market will work to the 3rd quarter numbers. On a positive note was the further bounce of average dairy prices at the latest Global Dairy Auction. The 1.1% increase for the month is encouraging and follows the recent increases. Also of note was credit agency Moody’s confirmation the NZ credit rating and stable rating outlook. New RBNZ Governor Wheeler continued his well balanced comments with regards to the economy, in face of criticism from attention seeking opposition politicians. This week is quiet for NZ economic news with just 3rd quarter retail sales numbers to hold interest on Wednesday.
United StatesThe election took primary focus in the US last week. The Obama win was never going to be particularly positive for sentiment, and this proved to be the case. The equity markets struggled in the sessions following the election result, and bond yields have continued to remain subdued. The economic data was relatively uneventful, with the latest consumer sentiment numbers portraying consumer indifference to the significant issue of the Federal Government’s “fiscal cliff”. This issue will be central in the coming month, and will dominate US headlines. This week will see the latest retail sales, inflation and manufacturing numbers released. Also of note will be Wednesdays release of the FED monetary policy meeting minutes.
EuropePositive moves in Greece dominated the European landscape last week. The Progress of austerity measures through the Greek Parliament has been central to this. However, until the Troika review in the coming weeks, there is no certain funding path for Greece, so concerns remain. Spain is somewhat off the radar for the time being, having completed its funding requirements for 2012. The European Central Bank (ECB) made no changes to monetary policy at its meeting on Thursday. This week sees business sentiment, GDP, inflation and current account numbers scheduled for release.
United KingdomLast week was a relatively quiet one for news in the UK. Services and manufacturing numbers were mildly disappointing, and the Bank of England (BOE) made no change to monetary policy as widely expected. This week should prove more lively with inflation, retail sales and unemployment numbers all due for release. Wednesday sees the release of the BOE inflation report and speech from Governor King whose comments will be closely watched by the market. Of course sentiment will also be closely correlated to Europe, and any developments that play out there.
JapanThere was little in the way of economic data last week. Of note was a rebound in the correlation between risk aversion and the YEN. Following the Obama election victory the equity markets saw considerable pressure and this drove renewed demand for the YEN. Yesterday we saw the preliminary 3rd quarter GDP numbers released at -.9% against expectation of a .8% contraction. Bank of Japan (BOJ) Governor Shirakawa followed the GDP numbers with comments backing up the BOJ’s latest policy easing. He commented that the BOJ would continue its powerful easing program and that the Japanese economy is continuing to weaken. He also stated that the BOJ would continue to guide policy whilst taking into account the risks of YEN rises hurting the economic growth prospects.
CanadaIt was a quiet week for economic news in Canada last week. Manufacturing numbers were slightly lower, but as expected, and the trade deficit was a little smaller than expected. This week is almost devoid of economic data and the majority of the focus will come from developments in the US. Next week retail sales numbers couple with the latest inflation data to increase the domestic focus.
Major Announcements last week:
- RBA leaves the cash rate unchanged at 3.25%
- UK Manufacturing +.1% vs +.3% expected
- NZ Unemployment rate 7.3% vs 6.8% expected
- Australian Unemployment rate 5.4% vs 5.5% expected
- BOE leaves monetary policy unchanged
- ECB leaves monetary policy unchanged
- Chinese Inflation 1.7% vs 1.9% expected
- US Consumer Sentiment 84.9 vs 82.6 expected