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What is happening in our economies of interest?

Written by Sam Coxhead on February 10th, 2012.      0 comments

5:15 PM (NZT)
The Australian Economy:
The focus in the Australian economy this week was the Reserve Bank of Australia’s (RBA) monetary policy announcement on Tuesday. Until Thursday last week, there was more than an 80% chance of a 25pt cut priced in, and a cash rate at 3.50%, by midyear from the current 4.25%. The RBA surprised the market with its decision to hold the cash rate at 4.25%. In their accompanying statement they said any changes going forward would be dictated by the upcoming data flow. More encouraging numbers in the US and Asia, and more stable credit markets in Europe, contributed to the change in outlook. Today’s RBA quarterly Monetary Policy Statement confirmed the themes from their earlier statement this week. Near term employment to remain subdued, appropriate to hold steady but have room to ease if needed. 
 
The US Economy:
Economic data in the US has been light so far this week. The focus been on two speeches made by Federal Reserve Chairman Bernanke. As expected Bernanke continued with the assessment from last week, pointing towards downside risks to the economy in the form of consumption, housing and the European issues. Interestingly, he spent some time explaining how the FED would be reigning in any inflationary pressure, at a slower than usual pace, in an effort to further stimulate the employment market. He has also not directly referred to Fridays stand out employment growth figures, probably more content to see if the strong tone continues in the coming months. Next week is a big week for economic news. Tuesday’s release of the retail sales numbers starts the focus. Wednesday sees the release of the minutes from the last FED monetary policy meeting, and Friday sees the release of the monthly inflation numbers.
 
The UK Economy:
The economic picture in the UK maybe finally starting to show some signs of life. Housing numbers on Monday were much better than expected coming in at +.6% (.1% exp) and manufacturing  production in December was +1.0%, vs an expected +.3%. The Bank of England (BOE) monetary policy decision has been the main focus. As expected the BOE increased the quantitative easing (QE) initiative by 50 billion GBP, to a total of 325billion. In the accompanying statement they acknowledged the increase in recent activity, but given the low level of inflationary expectation, felt they had the room for further loosening of monetary conditions. The meeting minutes are released in two weeks time, and will be of interest to the market, as they will reveal whether or not the vote was unanimous. Any dissention would make any further increases in the QE program less likely, and this would provide some support for the GBP over time.
 
The New Zealand Economy:
The news on the New Zealand economy this week has been all about the labour market. Monday saw the release of the Labour Cost Index, which revealed labour cost numbers had risen by .7% in the 4th quarter 2011. This was more that the a .5% rise expected and points towards a slowly tightening labour market. The quarterly unemployment numbers on Thursday showed conditions in the labour market are mixed. The Unemployment rate dropped from 6.6% to 6.3%. But this drop was driven by an exit from the work force, as opposed to any real jobs growth on the quarter. Next week’s sole focus will be the volatile retails sales number for the 4th quarter, which will be released on Wednesday.
 
The Canadian Economy:
This week has been more positive for the Canadian economy. Manufacturing numbers on Monday beat expectations at 64.1 with 58.6 expected. Building permits were also stronger up an impressive 11.1% on the month, but this is a notoriously volatile number. Next week is relatively quiet with a long wait until the inflation number, which are relatively unimportant in the current environment. The pick up the US economy should continue to support the Canadian numbers over the coming months. Any extra liquidity provided by central banks throughout 2012, will also indirectly support the CAD, through higher demand for Canadian commodities overtime.
 
The Japanese Economy:
The Japanese economic data calendar was somewhat light this week. An industry released survey showed occupied office space in Tokyo dropped again in the month of January, pointing towards again softer conditions in the capital. Machinery orders also came out weaker than expected at -7.1%, further evidence that the incredibly strong level of the YEN, is starving demand for Japanese exports. Next week sees the return of more significant economic data. Preliminary GDP numbers are due Monday and the Bank of Japan monetary policy announcement is on Tuesday. Expect further rhetoric about the possibility of further intervention from the BOJ, as the YEN hovers just below record levels against the other majors.
 
The European Economy:
The European economic situation has been all about the handling of the write down of Greek debt this week. The final decision on the path forward for Greece to secure this round of bailout funding, will have to come in the next couple of days. Headlines continue to be mixed and it’s unlikely that any resolution will finally be passed until the final hour. Meanwhile the economic numbers in the core economies, especially Germany, continue to look fairly strong. Obviously aided by the weak EURO German investor confidence is bouncing back, factory orders are stronger than expected and industrial production numbers were adequate. The European Central Bank (ECB) kept the cash rate stable at 1.0% as expected. Comments regarding the state of the economy and the financial sector were more positive that the previous meeting. It looks unlikely that a further cut to the cash rate will come in the coming months. The Longer term lending to banks will continue, and the ECB encouraged banks to get involved again. The longer term funding facility has stablised Europe over the last six weeks and has been a major part of the move back towards positive sentiment and risk appetite.
 
Of note:
The Greek politicians have agreed on the latest round of austerity measures. These need to be voted through by the full Greek parliament on Sunday. A positive full Greek parliament vote opens up the way for the Euro-group of European finance ministers to commit the current tranche of bailout funds to Greece. Assuming the bailout funds are  approved, the next step is the complex Greek debt swap agreement to be accepted. The acceptance of the write down on the present Greek bonds, and subsequent issuance of new debt instruments, opens the way for Greece to slowly climb from their current crisis situation. Even with debt levels reduced to around 100% of GDP, the recessionary environment in Greece is going to mean a very long road to recovery for Greece. Unemployment is still expected to be around 15-17% in 2020. These current deals, assuming they pass, are necessary to give Greece a chance to recover from the debt crisis and a recession which is already approaching five years in its existence.
 

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