5:05 PM (NZT)
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Major Announcements last week:
· Chinese Inflation 2.2% vs 2.4% expected
· UK Manufacturing +1.2% vs +.1% expected
· Australian Employment -27k jobs (Unemployment rate 5.2% as expected)
· BOJ leaves monetary policy unchanged
· Chinese GDP 7.6% vs 7.7% expected
· Italy sees strong demand for bonds at auction
· UK- BOE/Treasury announce Funding for Lending Scheme (FLS).
· US Much. Consumer Sentiment Survey 72.0 vs 73.5 expected
The financial markets saw mostly unremarkable price action throughout the course of last week. Little has changed on the global landscape, with both economic growth fears and credit availability remaining significant hurdles to the improvement of the near term economic outlook. The economic data flow remains mixed in the United States and Asia, while most indicators Europe and the United Kingdom remain under pressure. In Australian and New Zealand the somewhat surprising dislocation between the lowering growth expectations and the demand for Australian and New Zealand dollars continues. The all important Chinese economy has slowed as expected. Inflationary pressure has eased to 29 month lows and 2nd
quarter GDP hit 7.6%. The trade surplus was wider than expected, pointing towards lower domestic demand for imports. The overall global market conditions continue to point towards further sluggish activity for the remainder of 2012. This eventuality would be seen as a good result by many when compared to the downside risks at play.
The domestic focus for the Australian economy last week was the release of the softer than expected employment numbers. Lower fulltime employment numbers would be of concern if they continue as a trend. The raft of Chinese data last week provided a strong external focus for the Australian dollar market. There was certainly evidence of relief when the GDP numbers came in largely on expectation on Friday. This week’s focus comes almost solely on Tuesday with the release of minutes from the latest Reserve Bank of Australia’s (RBA) monetary policy meeting. Any further moves towards further stimulation from either the Peoples Bank of China (PBOC) or the US Federal Reserve (FED) in the short term would certainly lead to further demand for Australian dollars, and this factor has likely shielded the AUD from further downside moves in recent weeks.
There was a lack of domestic focus for the New Zealand economy last week. The Chinese numbers were of influence to the price action of the NZD, as were the Australian employment numbers to an extent. This week sees the focus on Tuesday’s release of the 2nd
quarter CPI inflation numbers. The expected level of .5% for the quarter would garner little reaction as it puts the annual number in the middle of the Reserve Bank of New Zealand’s targeted band. The external focus will come from the release of the RBA monetary policy meeting minutes on Tuesday, and FED Chairman Bernanke’s testimony on Capitol Hill. Expectations for any move from the RBNZ at next week’s monetary policy meeting, where they set the NZ official cash rate, are very limited.
Last week’s release of the minutes from the latest FED monetary policy meeting confirm that further quantitative easing (QE) initiatives remain an option. This week sees the release of the usual raft of economic data in the US, but the Bernanke semi-annual monetary policy testimony on Capitol Hill will be the focus. The minutes point towards strong debate within the monetary policy decision makers, so the comments from board chairman Bernanke will be closely watched. Retail sales numbers on Tuesday and manufacturing data Thursday will also be of focus.
It was interesting in Europe last week. The debt markets for Italy and Spain saw improvements in the face of a struggling EURO currency. ECB head Mario Draghi commented the near term data would decide if further stimulation was required. This week’s inflation number should not provide any hurdle as global inflationary pressure remains lows for the most part. Important German business sentiment numbers come on Tuesday. The increased level of bailouts still require court approval in Germany and this is a subject that may find more significant air time in the near term. Any kind of legislative hold up would prove uncomfortable for the wider EU membership, especially coming from its most important member. Last week’s ECB monthly bulletin revealed the acknowledgement that various downside risks have materialized. They also point out that they still have tools to use to help economic growth so long as inflationary pressure remain contained.
The UK economy continues to struggle for growth as the housing and employment markets remain under pressure. Interestingly the new joint Bank of England and Treasury initiative has been announced. The Funding for Lending Scheme (FLS) should provide up to 80 billion GBP of fresh lending at varied rates. These kinds of non-traditional ideas should become more common in the coming years, especially if they prove successful. The UK inflation number on Tuesday will be closely watched as usual. The recent relative strength of GBP against the EURO should keep the recent downward pressure alive much to the comfort of BOE policy makers. The BOE monetary policy meeting minutes come on Wednesday, and retail sales Thursday, ahead of the preliminary 2nd
quarter GDP numbers next week.
The Bank of Japan (BOJ) left monetary policy unchanged last week as expected. The trade data last week revealed that domestic demand is holding up relative to the export demand, so any further stimulation would be better kept for times when more stress is evident. The recent and material pull back from the YEN highs will have been a factor, but whether or not the pull back can be maintained is the key question. This week sees the release of the minutes from last week’s monetary policy meeting and these will be the sole focus in Japan for the week, ahead of trade balance, retail sales and inflation numbers next week.
It was a quiet week in the Canadian economy. This week is more active with manufacturing numbers just prior to what should be an unchanged monetary policy decision from the Bank of Canada (BOC) on Tuesday. Wednesday sees the release of the Monetary Policy Report and press statement ahead of the inflation numbers on Friday. Next week is again quiet in Canada with just the monthly retail sales numbers on Tuesday.