5:15 PM (NZT) 4:15 PM (NZT)
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Major Announcements last week:
· UK Inflation +3.0% vs +3.1%
· US Exiting Home Sales 4.62m vs 4.62M expected
· BOJ leave monetary policy unchanged
· UK Retail Sales -2.3% vs -.8% expected
· Canadian Retail Sales +.1% vs +.5% expected
· US New Home Sales 343k vs 335k expected
· HSBC Chinese Manufacturing PMI 48.7 vs 49.3 previous
· German Business sentiment and manufacturing surveys lower than expected
· UK revised GDP -.3% vs -.2% expected
· US Durable Goods orders -.6% vs +1.1% expected (previous number revised higher)
Last week the markets were again very uncertain and at times the fear was obvious with very negative price action. Risk aversion was apparent across all markets. It was only towards the end of the week that there was any real relief, as some profit taking emerged to provide support for growth assets. As expected there was nothing of substance to emerge from the EU summit, but behind the scenes planning for stablisation of the vulnerable European banking sector is positive. Spain has already taken steps to assure funding lines for important banks and a wider European solution is a distinct possibility, if the chatter is to be confirmed. Polls in Greece have not ruled out the backing of pro-bailout and EURO centralist parties, as the true prospect of a EURO exit dawns of the electorate. The US dollar resurgence continued for most of the week, only being outpaced by the YEN for appreciation. The major central banks remain on the sidelines for the time being. Further loosening in monetary policy remains an option, with most keeping the powder dry for the time being.
Last week was a quiet one for domestic Australian economic data. The focus came from offshore developments. European banking fears increased somewhat and this kept growth assets like the AUD under pressure for large portions of the week. Chinese manufacturing numbers were again softer and added to the theme of slowing Asian economic growth in 2012. Various Chinese officials have made pledges that policy will support growth, and infrastructure investment in particular and this is positive for the Australian export sector. Retail sales data on Wednesday, and building and capital expenditure numbers Thursday, provide the domestic focus this week. Any positive developments with regards to the banking sector in Europe will help demand for the AUD.
Last week the National Government confirmed their fiscally disciplined budget plans. The trade balance showed a less healthy surplus that expected, with lower levels of log and diary exports highlighted. Fonterra’s annual payments have been revised lower, but positively CEO Spierings predicted auction prices were at their expected lows. The NZD saw sustained periods of large supply push it to levels not seen in six months, before rebounding. This week is again light on economic data in New Zealand with just the monthly NBNZ Business Confidence Survey results due out on Thursday.
The outlook continued to look relatively buoyant in the US last week. The housing market looks to have seen the lows and volume and prices of sales have both increased. The weekly jobless claims numbers are also looking reasonable after creeping back up early in 2012. This week is a busy one for data in the US. Preliminary GDP numbers for the 1st
quarter are due on Thursday and employment and manufacturing numbers on Friday. Whilst the FED tool of quantitative easing remains available, it is likely it would only come back into use should the European situation really implode. Until such time, expect the US dollar to remain in demand as long as the economy can continue on its stable footing.
Fears increased in Europe last week as the banking sector continues to remain under pressure as the possible Greek exit from the Euro-zone threatens to further destablise. Spain have been forced to make moves to underwrite their largest banks, and a Europe wide pledge to provide stability is likely to be forth coming. Greece remains the primary concern in the short term and is likely to keep the EURO heavy ahead of the June 17th
election. German retail sales, European inflation and unemployment numbers will dominate the weeks data focus.
Last week UK inflation came in high at 3.0%, but below the 3.1% expectation. Retail sales numbers were alarmingly weak, as the consumer continues to look vulnerable. The final GDP numbers were also weak at -.3% for the first quarter, after an initial reading of -.2%. The Bank of England monetary policy meeting minutes were fairly much as expected and point towards further quantitative easing, if the downward growth pressures from beleaguered neighbor Europe persist. This week is less busy for economic data, with manufacturing numbers on Friday providing the highlight.
Japanese trade data was disappointingly soft last week. Lower domestic demand for imports was outstripped by lower international demand for Japan’s exports, as the first quarter slowdown globally starts to bite. The Bank of Japan held off from making any further loosening of monetary policy, as they join a team of central banks that look to be awaiting further developments in Europe, before deciding when to act. This week sees retail sales numbers on Tuesday and Industrial Production numbers Thursday, as the focus.
Last week saw weaker than expected retail sales numbers reported on Wednesday. The state of the residential property market was also under discussion, with a wide divergence in activity across Canada. Vancouver property is demonstrably weaker than cities further east and will weigh on Bank of Canada expectations of an interest rate hike. This week is again quiet on the data front, with GDP the focus on Friday to round out the week.