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Whats been happening in world economies this week?

Written by Sam Coxhead on December 1st, 2011.      0 comments

5:15 PM (NZT)  Of note: The central banks of the US, Europe, Canada, UK, Japan and Switzerland, extended the US dollar emergency bank funding lines, and halved their costs, in a large move to stablise the banking sector globally. In the move they reduced the costs of US dollar funding from 100bpts over cash (OIS) to 50pts. Adding to the move was action from the Peoples Bank of China, easing the RRR by 50bpts, essentially making credit more freely available in China. The Chinese move is a sure sign the global slowdown is really starting to bite in the nation, whose export sector is 45% of its economy.
 
The Australian Economy:
Australian economic data has been mixed at best over the last few months. The quarterly private capital expenditure number on Wednesday was well ahead of the expectation. The number of 12.3% against an expected 8.2%, was added to by the upward revision of the previous quarter from 4.9%, to 6.2%. To put it in perspective, it was the largest quarterly increase since 2003. However, just to clarify, now mining capital expenditure makes up a massive 48% of total capital expenditure, and remains very sensitive to changes in raw commodity prices. Today’s retail sales and building approvals numbers were not as healthy as expected, coming in at +.2 (+.4% exp) and -10.7% (+3.6% exp) respectively. Ahead of next week’s much anticipated Reserve Bank of Australia (RBA) monetary policy meeting, the odds of a 50pt cut to the cash rate have eased back. It appears a certainty that we will see a 25pt, with the cash rate predicted to fall to around 3 - 3.5% next year.
 
The New Zealand Economy:
In New Zealand this week we have seen some mildly positive news released in the form of a slight bounce in business confidence in the NBNZ survey, from 13.2 to 18.3. Also rebounding were the building consent numbers for October, from -17.2 to +11.2. The building numbers are notoriously volatile, but again the strength was coming through from the Auckland region. Next week sees the Reserve Bank of NZ (RBNZ) the focus, although there is no chance of a change to the cash rate, currently priced in the interest rate market. Of note is the fact that two of New Zealand’s major banks have revised their expectations for a cash rate hike from the RBNZ from June 2012, to Dec 2012.  The re-elected National Party Government is taking no time to push forward with their plans to dilute ownership of some of the state assets. The majority of the funds raised, will be used to pay down debt, and this will be well received by the market, as it progresses toward the end of 2012.
 
The US Economy:
US economic data continues to improve from the very low levels of earlier this year. Whilst the risks still remain for growth, because of the European debt situation, the risk of a dip back into recession remains less that 50%. This week consumer confidence, private employment, manufacturing and home sales numbers, have all beaten expectations. The focus for the remainder of the week are the all important employment numbers late on Friday. The US economy will struggle to maintain any decent momentum without a drop in the number of unemployed. Of note is action from the Federal Reserve to stablise the banking sector by extending in length and access the emergency funding options, for banks across the globe in US dollars. This reduces financial risks somewhat, but economic risks remain the same, and have to be dealt with via policy.
 
The European Economy:
The situation in Europe remains perilous. The central bank action to ensure US dollar funding lines for banks, goes someway to reducing financial risks, and now the politicians have to coordinate themselves to provide policy frame work to ensure further stability. With the European Financial Stability Fund looking unlikely to be large enough to deal with the current situation, policy adjustments to enable the ECB to provide support to encumbered nations is likely. Whether or not this comes via a conduit such as the IMF remains to be seen. Europe will likely descend into recession in 2012 and at the moment politicians are still trying to come up with a viable solution. Next week sees the ECB meet to announce monetary policy, and the odds are on for a 25pt reduction in the cash rate to 1.0%.
 
The UK Economy:
There has been little domestic action to report for the UK economy this week. Monthly house prices are showing a little more resilience that expected which is slightly encouraging. The UK Treasury has downgraded the growth forecast for 2011 from 1.7% expectation in March to just .9%, and for 2012 from 2.5% to .7%. Of note is this forecast assumes there will be a solution of the euro-zone turmoil. Manufacturing and Housing data round the week, but likely will be of limited consequence. Next week the BOE make their final monetary policy decision of 2011. There is unlikely to be any additional quantitative easing at this meeting, with all rhetoric pointing to increased stimulation early in 2012. Interestingly BOE head King stated this week that inflation risks undershooting targets in 2012, a stark contrast to the last two years. Low growth and low inflation are not a good combination, so expect the BOE to be proactive in the coming year.
  
The Japanese Economy:
In the Japanese economy this week the Jobless rate raised to 4.5%. But of more significance is the better than expected retails sales number that saw year on year growth of 1.9%, against an expectation of .7%. The economic data of late has been disappointing, so hopefully this proves to be a sign of better things to come. Unfortunately the earthquake rebuild is taking longer than expected and the global outlook not ideal with the ongoing saga in Europe. Next week the lack of top tier economic data continues but the final reading of the 3rd quarter GDP numbers will be closely watched.
 
The Canadian Economy:

This week has been a mixed bag so far for the Canadian economy. Monthly GDP figures were +.2% vs the expected +.3% number, and the current account was slightly worse than expected. Better news in the US (Canada’s largest trading partner), and a higher oil price will have brightened the outlook in the short term however. The Bank of Canada (BOC) was part of the coordinated approach to increased the US dollar funding to banks, and this will be appreciated by the market.
 

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