5:15 PM (NZT) 4:15 PM (NZT)
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Major Announcements last week:
· US Consumer Confidence 64.9 vs 69.8 expected
· Australian Retail Sales -.2% vs +.2% expected
· US Pending Home Sales -5.5% vs 0.0% expected
· NBNZ Business Confidence 27.1 vs 35.8 previous
· Australian Private Capital Expenditure +6.1% vs +4.1% expected
· US preliminary GDP 1.9% as expected
· Chinese Manufacturing 50.4 vs 52.1 expected
· UK Manufacturing 45.9 vs 49.7 expected
· Canadian GDP +.1% vs +.4% expected
· US Unemployment rate 8.2% vs 8.1% expected
· US Manufacturing 53.5 vs 54.0 expected
Last week saw further deterioration of sentiment in financial markets. The clouds seem to be aligning for a perfect storm as the market has been grappling with the political issues in Greece, and financial issues in the wider Euro-zone. Add to these slowing growth indicators in both the US and Chinese economies and the growing uncertainty is easily explained. As the uncertainty increases, so does the pressure on central banks and politicians alike to come up with further initiatives to support their respective economies. With numerous central bank monetary policy announcements this week, including the European Central Bank (ECB) and Bank of England (BOE), it will be interesting to see how policy unfolds. After Friday’s US soft employment data, the market was too quick to try and price further initiatives from the Federal Reserve (FED) and brief US dollar weakness proved unsustainable. Expect to see further uncertainty in markets over the next two weeks ahead of the June 17 Greek elections.
The economic news in Australia was mixed last week. Disappointing retail sales numbers were balanced by increased capital expenditure in the private sector, which was again driven by mining investment. Tomorrow’s Reserve Bank of Australia (RBA) monetary policy decision looms large for the Australian economy this week. Expectations for a 25pt plus cut to the cash rate have built into market pricing. This leaves the RBA in a tenuous position should they want to hold fire ahead of the GDP and employment numbers later in the week. Given the uncertainty in offshore markets it would be surprising if they did not cut the cash rate, and placate the current market pricing. Apart from Wednesdays GDP number, and Thursdays employment and trade balance figures, Friday’s Chinese inflation numbers will also be of particular note for the Australian dollar market.
Last week saw just the NBNZ Business Confidence Survey as a focus for the NZ economy. The survey results were as expected. They showed a pull back from the previous result, which is in line with lower global commodity markets and economic sentiment. This week again sees an absence of domestic market focus. Of note in related markets offshore will be the RBA monetary policy decision, Australian GDP and employment numbers ,and finally the Chinese inflation data on Friday.
Of concern in the US, and the wider global economy, was the softer nature of the economic data in the States last week. Lower house sales, consumer confidence and manufacturing numbers were joined by lower than expected employment growth. The weaker employment growth saw the unemployment rate edge back up from 8.1% to 8.2% for the month. Preliminary GDP numbers were bang on expectations at 1.9%. The increased uncertainty across most markets saw demand for US debt again increase and this has pushed the level of yield across the US interest rate curve to record low levels. This coming week will see the domestic focus come from the monthly services number on Tuesday, and Fed chairman Bernanke’s’ semi-annual testimony on capitol hill on Thursday.
The situation in Europe has intensified further as the political issues in Greece are coupled with financial stress in the banking sector in Spain. All this noise comes with a back ground of economies going backwards in many parts of southern Europe. The next weeks and months are pivotal to the future of the Euro-zone. It is likely than Spain will require some kind of bailout so it is able to assist its underwater banking sector. This week’s ECB monetary policy meeting will be very closely watched. Many think the ECB should be more proactive in its support of members economies that are under pressure. The ECB in turn are placing pressure on the politicians for direction. In European debt markets the periphery member funding rates head higher, while yield on 2 year German debt went through zero for the first time late last week. This means investors essentially pay the German Government to look after their money.
There was not much in the way of economic data in the UK last week. Friday’s manufacturing number came in softer than expected and adds to the recently mixed outlook. The European economy is weighing on the UK recovery and expectations are building for further quantitative easing from the BOE at its monetary policy meeting on Thursday, albeit the likely result will be unchanged policy at this time. Central to the balance of potential policy change this week is the fact that yields are at , or close to record lows, and inflationary pressure remains stubbornly high. However, these are not standard market conditions, and uncertainty remains at highly elevated levels.
The Japanese economy had only second tier economic data last week. Spending and retail sales numbers were fairly much as expected , but industrial production and earnings number were of concern. There was further speculation about Japanese authority intervention in the market to weaken the YEN. Friday’s offshore session saw a brief, but sharp move lower from the YEN as rumours’ of intervention briefly spread through the market. This week sees current account data and final GDP numbers for the 1st
It was a mostly quiet week for data in Canada last week, until Fridays release of the monthly GDP number. The weaker than expected number would appear to mirror what is happening in the US. Expect conditions in Canada to remain tenuous with a slowing US economy, and lowering of expectations for global growth. The Bank of Canada (BOC) will leave monetary policy unchanged at their meeting on Tuesday. Manufacturing numbers on Thursday will be closely watched, as will the employment report on Friday.