Written by Sam Coxhead or www.directfx.co.nz
Daily evidence of seasonally low levels of liquidity has seen flow driven moves accentuated. These conditions can make for frustrating markets at times. It will pay to be aware that these conditions are usual for this holiday period and unless unusual moves are backed up by a run of economic data or news, these moves usually falter. The reaction to the ECB funding offering of 3 year secured funds at 1.0% was very well received by the banks overnight. So much so that 489 billion worth of securities were offered for the cash. This illustrates the fragility of funding markets in Europe. This caused the US dollar resurgence on Wednesday in the offshore session, in line with further risk aversion.
The Australian Economy:
The news in Australia for the week has been the release of the RBA monetary policy meeting minutes from two weeks ago. The minutes were fairly guarded and noncommittal as is usual from the RBA. If anything they fall on the side of being “dovish”, that is they do not point towards a further cut to the cash rate in the early 2012 months, as the market might have looked for. Next week sees the release of private sector credit on Friday as a focus, and it is likely this will have little effect on the exchange rate.
The New Zealand Economy:
In New Zealand this week business and consumer confidence numbers were released on Monday. These were both slightly weaker, albeit the declines not at overly alarming levels, given the widely reported uncertain global economy. Wednesday saw the release of the 3rd quarter numbers for the current account. This number showed a larger deficit than expected and can be attributable to exported products receiving lower prices. The big question is whether or not this will continue to be a trend in 2012. This morning’s all important 3rd quarter GDP number showed the economy grew .8% in the quarter, against an expectation of .6% growth. There are no economic data releases next week, so all price action for the exchange rate will be driven by offshore leads.
The US Economy:
On balance news continues its positive run in the US. Interestingly building permit numbers for new dwellings were better than expected, and existing home sales were slightly worse than expected. The positive news added to some better news in the Eurozone and the UK, to push US equity markets up 3% yesterday. Only downward earnings revisions from software giant Oracle in the aftermarket took the gloss off a surprisingly positive day. Tomorrow sees final GDP readings, durable goods orders and new home sales numbers released.
The European Economy:
German business climate numbers on Tuesday were better than expected and helped create a positive session for markets globally. The ECB bank funding offer operation overnight has proven to be a victim of its own success. Market expectations were that around 300 billion Euros would be sought by banks, but 489 billion was actually sought. As noted above, this illustrates the frozen nature of funding markets and the banking sectors attraction to cash offerings to sustain themselves. There is continual speculation around the credit rating agencies and their monitoring of various state and bank entities in Europe. Of note overnight was a release by S&P, that a credit down grade for France would impact on the size of the European Financial Stability Fund. This kind of headline is Euro-zone negative, and is something that should be on the radar for 2012.
The UK Economy:
In the UK the BOE monetary policy meeting minutes did not surprise. Committee members unanimously agreed to leave monetary policy unchanged for the time being. Public sector net borrowing was slightly lower than expected, but not by a material amount to improve the debt outlook. There were some 2nd tier retail sales numbers which were encouraging. If these continue, they could improve sentiment in that sector. Later today the release of current account numbers and final 3rd quarter GDP number will be closely watched. Next week just sees housing numbers due for release, with likely limited impact.
The Japanese Economy:
Tough conditions in Japan continue into year end. Obviously of primary concern remains the YEN’s strength. Government sources were quoted on Reuters as saying growth forecasts for 2011/12 and 12/13, are again going to be downwardly revised to -.1% (from .5%) and 2.2% (from 2.8%) respectively. Numbers like these do little to improve sentiment. The earthquake rebuild is also taking longer than many expected. Expected further YEN weakening strategies from officials in 2012.
The Canadian Economy:
Canadian inflationary pressure remains benign as illustrated by the monthly inflation numbers that came in at just .1%. Last night’s retail sales numbers provided a little action with the .7% numbers well beating the expectation of .3%. The Canadian economy continues along its path of muted activity for the most part, but it is still somewhat better placed than most other western nations. The continued pickup in activity in the US will be encouraging for 2012, as long as the worst case scenario does not play out in Europe.
Originally posted at www.directfx.co.nz