5:57 PM (NZT) 4:15 PM (NZT)
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Major Announcements last week:
· Australian Building Approvals +7.4% vs +3.2% expected
· Australian Retail Sales +.9% vs +.3% expected
· Canadian Building Approvals +4.7% vs -.5% expected
· Australian Unemployment rate 4.9% vs 5.3% expected
· Chinese Trade Balance 18.4B vs 10.0B expected (lower import demand)
· UK Manufacturing +.9% vs +.5% expected
· BOE leaves monetary policy unchanged
· Chinese inflation 3.4% as expected
· Chinese RRR decreased by 50pts-freeing up capital for lending.
· Canadian employment growth 58.2k vs 10.1k expected
· US UOM Consumer Sentiment 77.8 vs 76.4 expected
Risk aversion increased throughout the wider financial markets last week. The leading contributor was undoubtedly the inability of Greek politicians to cobble together some sort of leadership in order to avoid having to go to the polls again. The rapid rise of anti-austerity policy is gripping Europe across the board, but in Greece the effect is an immediate state of paralysis. The higher chances of Greece leaving the Euro-zone before the end of 2012 has far reaching ramifications, and this is why such a small country continually makes a large impact. Elsewhere the economic data remains patchy at best. Numbers in North America are holding up, but the deep slow down in Europe is impacting Asia. Over the weekend Chinese authorities cut the reserve ratios of their banks in an attempt to boost slowing growth.
Following the previous week’s larger than expected cut to the cash rate, the economic data in Australia last week was ironically, stronger than expected. Building approval and retail sales numbers started the week, both significantly higher than projections. But the real surprise came in the form of a 4.9% unemployment rate against an expectation of a 5.3% rate. However, this 4.9% headline number was stronger than the detail suggested, with a fall in full time jobs growth and a lower participation rate. The Federal Budget offered few surprises, and was of little material impact to the overall balance of the economy. This week sees the minutes from the previous Reserve Bank of Australia monetary policy meeting released on Tuesday. Given the larger than expected move, these will be closely followed, and provide the domestic focus for the week. Of note has also been the soft indicators coming out of the Chinese economy. Over the weekend the lowering of the reserve requirements for banks, will potentially provide a lending boost for Chinese business, and this should be of benefit to Australian exporters overtime.
There was little in the way of domestic economic news in New Zealand last week. The Real Estate Institute of NZ monthly numbers showed a slight pull back in house prices compared to the previous month. The interest rate market has seen plenty action over the last couple of weeks. Strange price action pushed expectations of a Reserve Bank of NZ cut to the cash rate at the next meeting in June to 80% priced. Given the demonstrably lower level of the NZD over the last month, a cut to the already low cash rate of 2.50% would be very unlikely. As the interest rate market corrects itself, the outcome should be somewhat NZ dollar supportive. Today’s release of the quarterly retail sales numbers showed a marked decline of -1.5% from the last quarter of 2011. This can be best explained away as a correction after the dramatic boost to retail spending over the Rugby World Cup. Producer prices will also be reported on Thursday, but will be of little impact to overall sentiment.
The US economy had a relatively quiet economic data calendar last week. The latest Government bond auction was very well received and that was of little surprise given the strong risk aversion evident in markets of late. Weekly jobless claims numbers returned to more positive levels after a recent move back up towards problematic levels. Interestingly the consumer sentiment numbers came out stronger than expected. This is positive and correlates to the recent pick up in the residential housing market. This week is a busy one for economic data and central bank releases. Inflation and retail sales numbers come on Wednesday and will be closely watched. Thursday sees the release of the latest monetary policy meeting minutes from the Federal Reserve (FED). Friday rounds out the week with the important manufacturing numbers from the Philadelphia Federal Reserve.
The inability of Greek politicians to pull together a coalition is proving stressful for investors in Europe. Confidence is low and the Europe wide push back against adopted austerity measures signals further unrest to come. Apart from the prospect of another round of Greek elections, Spanish provisions to bail out its banks are also topical, as are the changing political landscapes in both France and Germany. This week sees the release of both inflation and GDP numbers. GDP numbers are expected to confirm that Europe is back in recession, being the second consecutive quarter of negative economic growth.
Last week’s UK economic indicators were mixed. House price and retail sales point towards a continuing lethargy in the economy. A bright spot was better than expected monthly manufacturing numbers. Longer end interest rates in the UK are lower on the back of capital flows out of Europe, and this is a positive for borrowers in the UK. As expected the Bank of England (BOE) left monetary policy unchanged last week. Wednesday is the focus this week, with employment numbers and the BOE Inflation Report taking center stage.
Last week was a quiet one for Japanese economic indicators. Trade balance numbers were the focus and these revealed higher than expected export numbers, which was positive. Further jawboning from various Japanese finance officials with regards to the strength of the YEN provided a little colour to what was a week of mainly external focus. This week sees the focus mainly on the GDP number on Thursday. A recovery from the negative growth of the last quarter of 2011 is expected to provide a +.9% result for Q1 2012.
Last week proved to be another relatively positive one for the Canadian economy. Building numbers early in the week surprised with their strength and these were backed up by another strong employment number on Friday. Employment growth was over 58,000 against an expectation of around 10,000. This week is a little quiet, with the market having to wait until Friday for the week’s primary focus, in the form of the monthly inflation numbers.