By Sam Coxhead of www.directfx.co.nz
The Australian Economy:
It has been an interesting week for the Australian economy. After last week’s larger than expected cut to the cash rate from the RBA, economic indicators have been better than expected. Building approvals, retail sales and yesterday’s employment numbers were all buoyant. The unemployment rate dropping back to 4.9% is a strong headline number, albeit the detail was not so sturdy. Of the jobs growth on the month, added part time jobs of 26k countered for a 10.5k fall in full time employment. Importantly the participation rate fell, easing the way for the reduced unemployment rate. The Chinese trade balance indicated lower demand for imports, and that is a negative sign for Australian exporters. Today’s Chinese inflation numbers showed al level if 3.4% vs an expectation of 3.3% and a previous of 3.6%. A lower than expected number would be AUD positive. Next week’s focus will be the release of the RBA monetary policy meeting minutes, from last weeks meeting. Given the surprise magnitude of the cash rate cut, these minutes will be closely followed.
The US Economy:
A relatively quiet week for economic data in the US. The April Federal Budget surplus of 59.1B was the largest since April 2008, and is encouraging. US interest rates have pushed down to low levels, as demand for the safety of interest rate bearing bank investments has increased, in response to escalating fears about the situation in Europe. Next week sees inflation, retail sales, construction and manufacturing numbers all released. Closely followed will also be the FED’s monetary policy meeting minutes on Wednesday. The lower oil price has been USD supportive over the last couple of weeks, but the downward momentum has eased considerably, stablising the FX ranges as a result.
The UK Economy:
Housing numbers still indicate a sector under pressure in the UK. Manufacturing numbers yesterday were stronger than expected and are somewhat encouraging. The focus for the week has been the Bank of England (BOE) monetary policy decision yesterday. The BOE left monetary policy unchanged and the market awaits the meeting minutes in two weeks for further insight to the current feeling of the board. The European situation has the potential to rapidly alter outlooks, so these will be closely watched. The latest inflation numbers are due next week, and these will be closely watched.
The New Zealand Economy:
There has been little in the way of economic data released in New Zealand this week. Of influence has been the somewhat strange goings on in the interest rate markets. Over the last week, a perfect storm of a global move lower in interest rates, the RBA cutting their cash rate by 50pts, and last week’s jump in the unemployment rate, has seen unusual price action in the NZ interest rate market. Early in the week, the market had moved to price an 80% chance of a cut in the cash rate from the RBNZ. This move was driven by wholesale investors scrambling to cover positions and a very illiquid market. It is highly unlikely the RBNZ would consider cutting the cash rate, with the value of the NZD having moved over 4% lower, on a trade weighted basis, in the past month. The European situation would have to escalate to new levels, to open up that scenario, and it would be driven by a freezing of credit markets offshore. Next week’s focus will be on the retail sales number for the first quarter due Monday. Fonterra bi-monthly diary auction results will also be closely watched.
The Canadian Economy:
There has been relatively little focus on the Canadian economy so far this week. The oil price stabilising after its recent weakness will be supportive of the oil exporting regions. Volatile building numbers were demonstrably better than expected on Monday. Later on today employment numbers get released and these provide the real focus for the week. Next week along with second tier wholesale sales and manufacturing numbers, Friday’s inflation numbers will provide the focus.
The Japanese Economy:
In Japan this week the trade balance data pointed towards improved levels of exports which is encouraging. As expected various finance officials have been playing lip service to the strong nature of the YEN, but given the wider market risk aversion evident for most of the week, any action would be fool hardy at this time. Next week the preliminary first quarter GDP numbers on Thursday provide the focus.
The European Economy:
In Europe this week the weaker economic data has coupled itself with increased political uncertainty to escalate fears about the ongoing viability of the single currency. Anti-austerity slogans have seen the rise in popularity of left wing parties in Greece. There is little chance of the coalition being cobbled together and another election is likely at some stage soon. Concerns about the ability of the Spanish to reduce deficits further clouds the outlook in Europe. Tensions around the austerity drive and a lack of growth point towards a bumpy road for Europe over the medium to long term. Next week sees GDP numbers released and no doubt these will make dismal reading for the most part.
Of note :
For the most part this week has been about risk aversion. The escalation of uncertainty in Europe on both economic and political levels, are directly driving the risk aversion. With the likes of the Chinese Investment Corporation publically standing back from any new investment in European debt, the feeling is one of coming to a turning point. The transition of power in France is a focus. Across Europe there is populace movement away from austerity measures, that are at the heart of core member Germany’s leadership. It is hard to see any material recovery in risk appetite in the short term, given the current sentiment.
Originally posted at www.directfx.co.nz