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The Australian Economy:
It has been an interesting week for the Australian economy. After a couple of weeks of building momentum toward a cut in the cash rate from 4.25% to 4.00% at the next RBA meeting on May 1st, the market has backed off a little. First came the much better than expected trade balance numbers for China on Monday, and today also better than expected Korea and Australian employment numbers suggest the region is not slowing up as quickly as recently perceived. Heading into today’s Chinese GDP number there was strong demand for Australian dollars as the rumour mill had the number coming out in excess of 9.0%. The official forecast was 8.4% and the actual result disappointed the market at 8.1%, and caused an immediately move towards risk aversion.
The US Economy:
It has been an interesting week for the economy in the US. The more “dovish” FED members have been in the headlines with comments that push the needle back towards some chance of further stimulus in the coming months. The rhetoric certainly has its effect of lowering demand for US dollars, and that in itself probably makes their effort worthwhile. The economic data has been a little mixed this week. The Federal Budget balance was slightly better than expected and the FEDs “Beige Book” pointed towards moderate rates of growth expected in most regions. The weekly jobless claims numbers released overnight were demonstrably higher than expected, but this can happen from time to time , and next weeks will be closely watched to see if the pattern continues. Earnings results from US corporates have been reasonably positive and have buoyed stock markets. The inflation number later on today remains the final focus and will be closely watched.
The UK Economy:
It has been a relatively quiet week for the UK economy. With the distinct lack of economic data the lead for the Pound Sterling has generally come from offshore. The Australasian currencies in particular have seen demand against the Pound Sterling, which has reversed the recent gains as risk appetite increased. Following the lower than expected Chinese first quarter growth numbers, the GBP may see some demand as we head into the weekend. Next week sees a return of the top tier economic data. First comes inflation on Tuesday, employment and BOE monetary policy meeting minutes on Wednesday, and retail sales numbers on Friday.
The New Zealand Economy:
The New Zealand economy has had another week light on economic data. The sole domestic focus came with the release of the NZ Institute of Economic Research Business Confidence Survey. It shows that the growth and expectations outlook remains modest for all but the Canterbury region. The rebuild in Canterbury is finally started to be evidenced and this will add to economic activity at a national level throughout 2012. Interestingly, the observation can be made that looking back there has been a dislocation with the growth expectations and eventualities over the last couple of quarters. Expectations were of a markedly stronger pickup than was experienced. The Chinese GDP data earlier this afternoon was highly anticipated as rumours had it in excess of 9.0%. The disappointment was clear with the 8.1% number, and USD demand quickly ensued as risk aversion sharply increased. Next week sees the release of the inflation data on Thursday. This will be watched but should only garner a reaction from markets if it is demonstrably higher than expected.
The Canadian Economy:
It has been a relatively quiet week for Canadian economic data. The Bank of Canada (BOC) business sentiment survey showed increased optimism in the coming months across a number of sectors. Of note was the fact that primarily a healthier US export market was the driver of improved optimism. Last night’s trade balance was not as high as expected, and could potentially point to softer growth overtime. Next week will see an unchanged monetary policy decision from the BOC on Wednesday, and the monthly inflation figures on Friday.
The Japanese Economy:
The Japanese current account surplus was higher than expected when released on Monday. The Bank of Japan left monetary policy unchanged at their meeting on Tuesday, but it seems likely that we will see further stimulatory efforts from Japanese officials in the near future, with Japanese press reporting that an expanded asset buying program would be announced on April 27th. Next week sees a return to a quiet economic calendar for Japan, so the sentiment is that YEN will be led by the wider market appetite for risk once again.
The European Economy:
It has again been a volatile week for the economy in Europe, with the debt market ebbs and flows controlling sentiment. Italy has a reasonably successful bond auction overnight which was positive for sentiment and help recover from yields seen earlier in the week. Higher bond yields for peripheral member states translate to lower demand to EURO, so it is easy to see the influence. Next week sees various German business sentiment numbers due for release , and importantly the Euro-zone inflation number on Tuesday.
Of note :
There has been talk in the interbank market of a large asset re-allocation trade being executed over the last couple of days. This would explain the price action and buoyant risk appetite. It apparently was a move from bonds into equities from a large fund, and involved numerous billions. The higher equity markets certainly eased the way higher for both the NZ and Australian dollars. With the lower than expected Chinese GDP data, and possibly with the asset re-allocation out of the way, there is potential for recently gained ground to be given up by growth assets being given up in the coming sessions. This would be a continuation of the contained range trading theme apparent for much of 2012 so far.