By Sam Coxhead from www.directfx.co.nz
The Australian Economy:
It has been an interesting week so far for the Australian economy. With the hugely influential mining sector being so closely linked to the fortunes of Asian trading partners, the outlook for Asian growth is of paramount importance. The latest Reserve Bank of Australian monetary policy meeting minutes were very much as expected and highlighted a risk of slower than previously expected growth in Asia. With limp Euro-zone demand for Asia’s exports, the global interconnectivity is clearly displayed. Mining giant BHP signaled they saw flattening demand for their iron ore from China. This saw the AUD sentiment again weaker, as commodity prices appear to have increased vulnerability. Adding to the weaker sentiment was the release yesterday of the monthly HSBC Chinese Manufacturing Survey. A reading above 50.0 is growth territory, the previous number was 49.6, and this month it saw a dip to 48.1, making it the 5th straight month of contraction within the sector, according to this data set. There is not significant data due for release in Australia next week.
The US Economy:
The US economy is one of the few economies not to suffer a material knock back this week. Housing numbers have been close to expectations and the weekly jobless claims data was better than expected. Comments from FED officials have been measured. US longer term interest rates have been interesting. Mid week they hit levels not seen in months, before retreating as levels of risk aversion increased. Overtime the higher US longer term interest rates are supportive of the US dollar. Next week sees the release of consumer sentiment and durable goods sales (large item). There is also the final reading for the 4th quarter 2011 GDP numbers. Expect it to be an unchanged 3% on an annual basis. Interestingly, despite the FED’s pledge to maintain almost 0% interest rates until 2014, now 53% on surveyed economists expect a hike in the cash rate from the FED in 2013.
The UK Economy:
An interesting week for the UK economy. Inflation numbers came out slightly higher than expected. The Bank of England (BOE) monetary policy meeting minutes released, were largely as expected. The annual budget release was somewhat contentious, but on balance of limited impact. The real surprise was the weak retail sales numbers, with February numbers weaker than expected, and the January number revised markedly lower from the initial reading. The Pound Sterling has seen periods of strong demand, especially against the Australasian currencies.
The New Zealand Economy:
It has been an interesting week for the New Zealand economy also. The Current Account deficit was as expected at -2.76 billion. The Finance Minister Bill English commented the deficits may continue to increase in the short term, and could have been worse had it not been for record diary exports. The 4th quarter 2011 GDP data came in at +.3%, against an expectation of +.6%. Manufacturing was the weak component. This took the gloss off diary production, services, and a boosted retail sector on the back of the positive Rugby World Cup effect. This number should be somewhat discounted when considering the outlook from here, as the BNZ manufacturing survey data suggested a strong resurgence in activity in recent months. The Reserve Bank of NZ (RBNZ) will not have their view materially altered by this somewhat historic number, as they remain poised to leave the cash rate unchanged at 2.50%, for the majority of 2012 at the very least. Adding to the negative NZD sentiment was news from China that tariffs on dairy products would increase.
The Canadian Economy:
The Canadian economy has not had great news this week. Wholesale and retail sales numbers have come out demonstrably lower than expectations. This does not bode well for the consumer sentiment outlook. Tonight’s inflation numbers will be closely watched, but in the current environment should be of limited impact. The lower commodity markets have undermined CAD demand, although it has managed to outperform its Australasian counterparts. Next week the lead will predominantly come from external sources, ahead of the all important GDP numbers on Friday.
The Japanese Economy:
The news was more positive in Japan this week. First came a more upbeat survey of manufacturers. This was coupled with a sharply better than expected trade balance that saw a surprise return to surplus. The commitment of the Bank of Japan to weaken the YEN has been a significant factor in 2012, and interestingly there is evidence of increasing activity on the foreign currency deposit schemes in Japan. These “carry trade” instruments are utilized by Japanese savers, and require selling YEN, to buy foreign currencies with higher interest rates (like AUD and NZD). This is so they can get a better interest rate return on their money. Next week sees retail sales, household spending and inflation numbers due for release. Of influence may also be the approach to the financial year end for Japanese corporates, and to what extent the repatriation of revenue helps support the YEN in the short term.
The European Economy:
The European economy has had mixed progress in its debt markets this week. Initially most periphery member interest rates moved lower in what is a sign of increasing confidence in their ability to repay their borrowings. However, late in the week we have see a partial reversal of these positive moves as the wider market risk aversion has increased. European manufacturing numbers show a weaker than expected performance and this has added to the risk aversion. Next week’s EU summit may prove pivotal as discussions of the size of Europe’s “firewall” to prevent further debt restructuring, such as Greece’s taking place. This will no doubt prove contentious, if previous experience is anything to go by. Of note this week has been solid support for the EURO across the board for the most part. Especially to start the week, demand for EURO’s was strong, even as fundamentals suggested a move lower maybe appropriate. This type of demand is positive, and hopefully shows support for the single currency, having been under so much pressure in the last few months.
Originally posted at www.directfx.co.nz