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Whats happened in the economies of note this week? - 9 March

Written by Sam Coxhead on March 9th, 2012.      0 comments

12:45 PM (NZT)
The Australian Economy:
The Reserve Bank of Australia (RBA) was the initial point of focus this week in Australia. As the market correctly expected, the RBA left the cash rate unchanged at 4.25%. They deemed inflation was within its band, and growth will be close to trend. Risks remain for both the offshore and domestic outlook, but at this stage monetary policy is deemed appropriate. These comments point towards further cuts to the cash rate, if the data trends lower, or risks increase in offshore markets. This position gave extra significance to the weaker than expected growth numbers reported for the 4th quarter 2011 Wednesday. The .4% result was half the expectation and trend level. The interest rate market therefore increased the chances of a cut at the next meeting, but was hesitant at pushing things too far. Yesterdays employment numbers were fairly much as expected, in that the unemployment rate rose .1% to 5.2%, as expected. The number of part time jobs fell by 15k, and full time employment was stable. Today sees the release of the latest Chinese inflation numbers. Do not be surprised if these come in on the low side as the official expectation for 2012 Chinese growth of around 7.5%. Next week sees just home loan numbers due for release on Tuesday, which will make for a light week for domestic focus.
The US Economy:
Economic data in the US has been relatively light so far this week, with the focus being on tonight’s employment numbers. Non-manufacturing sector numbers on Monday were again stronger than expected, but the weekly jobless claims numbers edged higher, against the recent trend. Next week is a busier economic calendar in the US. We have retail sales data, a FED monetary policy statement, manufacturing, inflation and consumer sentiment numbers. Expect the positive theme to continue in the US as the ongoing stimulation continues to permeate through the economy. The labour and housing markets remain the key, and are coming off very low bases.
The UK Economy:
The Bank of England left monetary policy unchanged at their meeting yesterday. As is the case when they release unchanged decisions, they do not make accompanying statements. So we wait for the actual meeting minutes in two weeks time, to ascertain the tone of the meeting. House price numbers eased lower earlier in the week. We have manufacturing and producer price data due for release later today. Next week is reasonably light on economic data in the UK, with unemployment numbers on Wednesday the focus.
The New Zealand Economy:
The focus of the week was yesterdays Reserve Bank of New Zealand (RBNZ) monetary policy decision. As expected the decision was to leave the cash rate unchanged at 2.50%. It looks like we will not see an increase in the cash rate in 2012 now, unless we see a dramatic fall in the value of the NZD, on a trade weighted basis. This is because RBNZ Governor Bollard  stated the high level of the NZD was containing inflation for the most part, as well as limiting GDP growth. Inflation remains in the middle of the target band, and expectations are for lowering pressure in the coming months. Interestingly he also commented that with the sustained high level of the NZ dollar, the need for future cash rate hikes would be reduced. There is little or no major economic data in the NZ economy next week, so expect drivers to come purely from offshore.
The Canadian Economy:
Manufacturing activity in Canada has increased more than expect at 66.5 (62.1 exp). The Bank of Canada left the cash rate unchanged at 1.0% as expected and made some reasonably upbeat comments, which is interesting. Global risks had diminished, and the outlook had somewhat improved. Employment numbers later today are the next focus. These are curious numbers in a similar way to Australia. Oil exploration related regions and industries remain buoyant and robust, whilst other regions quietly suffer. Obviously US employment numbers later today are of material importance to the Canadian economy also, being their neighbor and by far largest trading partner. Next week is light on Canadian economic data, so expect the lead again to come from the wider market.
The Japanese Economy:
Japanese average cash earnings number released this week were better than expected at 0.0% (-.3% exp). Final 4th quarter 2012 GDP numbers showed contraction by the expected .2%. The recent weakening of the YEN will have been  very much welcomed by Japans export sectors .Whether or not this becomes a trend, is very uncertain, as the price action this week displays. Next week the Bank of Japan monetary policy decision will be closely watched. Their recent surprise QE initiative will ensure this focus remains intense in the coming months.
The European Economy:
Overnight the ECB left the cash rate unchanged as expected. Comments from ECB head Draghi were strangely upbeat, in the face of 2012 growth expectations being lowered from .5% to .3%. The inflationary pressure stays high at above 2%. However a lot of this inflation can be attributed to the elevated oil price, that typically central bankers will look through. Peripheral interest rates continue to lower from their elevated levels, whilst core interest rates of France and Germany have increased with the recent positivity.
Of note:
The focus remains on the uptake of the Greek private sector debt swap. The private sector involvement (PSI) in the Greek debt swap is simple. Private holders of current Greek debt, are being asked to swap their current bonds for new bonds, that have around 75% less face value. The alternative is a Greek default that sees debt holder receive nothing for their bonds. There are a number of different outcomes depending on how many volunteer to enter the deal. The Greek Government looks to have the numbers to activate the Collective Action Clause (CAC), which will force all people not volunteered already, to accept the new terms. This would set off bond insurance (CDS) clauses. This would have an effect on the market, but the nature of it is very uncertain.  Another alternative is to pay out those not yet signed up to the scheme, the face value of the bonds. This would seem hugely unlikely, as obviously it would be extremely unfair on those who have already volunteered to write of debt. Nevertheless it has been raised as a possibility.
Confused as to what may actually happen, and what effect it may have? So is the market. There once again is simply no absolute answer. At any rate, the results will become known at some stage later today, or over the weekend.