The wider financial markets remain weary ahead of the tightly contested US Presidential elections. A second term for the Obama administration would likely see increased risk aversion in the short term lead to strength in the US dollar and lower global equity markets. Sentiment in Europe remains fragile as the economic data continues to under perform. While focus remains on Greece and their ability to achieve material labour reform, the back drop of Spanish indecision is unsettling. Asian economic indicators point towards a stabilisation of growth in the short term and this has helped maintain the relatively positive outlook for the Australasian economies.
Domestic news in Australia was mixed last week with buoyant building approval numbers tempered by lower Australian commodity price data. Yesterday’s solid retail sales numbers were encouraging, but the focus remains on the RBA monetary policy announcement due later today. The market expect a lower cash rate of 3.00% over the next two meeting, so debate surrounds whether it comes at this meeting or the next. With the market having fully priced this cut, market reaction should be relatively muted. Of positive influence to the Australian economy were last week’s stable Chinese manufacturing numbers. Later this week sees the monthly employment numbers released on Thursday, and the quarterly RBA monetary policy statement on Friday. Both will be keening watched by the market.
There has been little in the way of important economic news in New Zealand of late. Last week’s stable Chinese manufacturing numbers are a positive external influence, and the exporting sector will be hoping that the improved sentiment continues into the 4th quarter. This week sees the release of the 3rd quarter NZ employment numbers on Thursday and these will be keenly watched. The RBA cash rate announcement later today will also be of note, given that Australia remains New Zealand largest export market. Next week is again quiet for NZ economic news, with just retail sales on Wednesday to offer interest.
US employment numbers were solid last week. Although the unemployment rate was up .1 to 7.9%, the numbers actively looking for work also increased. This means the expectation of finding work has increased and this is in line with the recently improved personal spending numbers in the US. This week sees the attention squarely on the elections later today. The swing states of Ohio and Florida are again of major interest, in a contest where both candidates are polling equally on a national basis. The result will provide some material market “noise”, but the effects will likely be short term. An Obama win would lead to lower stock markets and general risk aversion, which drives the US dollar higher. Later in the week we have the trade balance and consumer sentiment numbers, but this will likely be of limited impact.
Frustrations are again growing in Europe. Concerns of the ability of Greek policy makers to put in place labour market reform are again putting Greece’s future in the Euro-zone in question. Spain also continues to cause consternation with its gamesmanship with regards to requesting funding assistance. Given the complexity of the situation in Europe, it can be expected that hurdles will be seen along the long road of recovery. The current weak economic data is accentuating the situation. Apart from the upside surprise in the retail sales numbers, the rest of the data has been disappointing. The employment situation is dire as the unemployment rate hits a record high at 11.6% in Europe, and over 25% in in Spain. The European Central Bank (ECB) meet this week, but are not expected to make any changes to monetary policy at this meeting. Next week sees the release of business sentiment, GDP and inflation numbers in Europe. The US election will likely be providing the short term direction for the EURO, via the performance of the US dollar following the election result. If Obama wins re-election, the EURO may see further downward pressure.
After recently looking more robust in the UK, the latest economic data has again been mixed. Lower manufacturing and services numbers came out alongside more encouraging construction figures. Continuing to drag on the UK economic prospects are moribund levels of activity in closely aligned Europe. This week sees the Bank of England have their latest monetary policy meeting, although no change to policy is expected. Next week sees the inflation, unemployment and retail sales numbers released and these will be very closely watched.
The Bank of Japan placated the markets expectations for policy action last week. The 11 trillion YEN policy package was close to expectations, and the associated bank lending scheme has been well received. The intended consequence of a weaker YEN will please policy makers, albeit the medium term that matters. There is little data on consequence and the direction for the YEN this week will likely be a result of the US election. Next week sees preliminary 3rd quarter GDP numbers due for release and these provide the focus.
Last week revealed Canadian unemployment was stable at 7.4%, as was widely expected. The Bank of Canada (BOC) Governor Carney testified to Parliament on the economy on Friday and commentated that a hike to the cash rate will likely be needed in time, as the inflationary pressure builds. The intensifies the debate on the timing of any potential hikes to the Canadian cash rate in 2013, and it at the heart of the recent CAD weakness. If the interest rate market returns to its hiking bias, the CAD should stage some kind of recovery. The focus in the near term will be the US elections later on today. The latest manufacturing numbers are due late Thursday, but will be of minimal impact. Next week is again quiet for economic data in Canada, with just second tier manufacturing numbers due on Thursday.
Major Announcements last week:
- BOJ initiates 11trillion YEN of stimulus
- Canadian GDP (MoM) -.1% vs +.2% expected
- Chinese Manufacturing 50.2 vs 50.3 expected
- US Maunfacturing 51.7 vs 51.2 expected
- Canadian unemployment rate 7.4% as expected
- US umemployment rate 7.9% as expected