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The Australian Economy:
There has not been a lot of Australian economic data this week. House price numbers continue to show weakness, especially in those non mining related regions. This weakness away from non mining related sectors is wide spread and indicative of the two speed economy at play in the current environment. Next week the RBA are poised to cut the cash rate to 4% from 4.25%, and the market sees a possibility that they continue to cut in March. Given the recent credit downgrades in the Australian banking sector, funding rate rises will have to be passed through to mortgage holders at some stage, and this eases the way for a lower cash rate for the RBA. Also next week is the quarterly RBA Monetary Policy Statement. This will provide valuable insight to the Banks feeling on current economic conditions and inflationary pressure.
The US Economy:
Fallout from the downbeat comments on the Federal Reserve’s (FED) monetary policy announcement last week, has continued. The US dollar remains under pressure from all sides in 2012. The threat of further quantitative easing (QE) and lower for longer interest rates, has seen a rush to exit bought US dollar positions in the market. This rhetoric is likely to continue from the FED, as a lower currency will help their economic recovery. The economic data was healthy in the final quarter of 2011, so a little patchiness was to be expected to start 2012. This week has seen mixed reports in manufacturing and slightly lower consumer sentiment. The big focus comes on Friday with the release of the latest employment statistics. Further downbeat comments from FED Chairman Bernanke overnight, pointed towards a soft economy, that will be subject to shocks. He also pointed out the US labour market is far from operating normally and the FED is watching developments (or lack of them), very closely in Europe.
The UK Economy:
The ailing UK economy seems likely to get some additional stimulation for increased quantitative easing (QE), from the Bank of England (BOE) at one of its two next meetings. Next Thursdays BOE monetary policy meeting will be the focus of the week. This week has seen some better than expected manufacturing numbers, which have been welcomed. By far the most important influence on the UK economy will come from what plays out in Europe over the medium term.
The New Zealand Economy:
The New Zealand economy remains tepid at best. This week saw just the volatile building consents number released and this shows a small bounce from the previous month, but numbers remain at historic lows. Last week’s RBNZ comments continue to see the NZD in demand, even though it is unlikely there will be a rise in the cash rate until the end of 2012 at the earliest. In the latest Fonterra auction, diary prices were around 1% lower across the board. This coupled with the recent appreciation of the NZ dollar will maintain margin pressures across the export sector. Next week sees the release of the important employment numbers on Tuesday and these will be closely watched. New Zealand’s export markets remain vulnerable to downward shocks. The latest Asian manufacturing numbers point towards a slight pickup in the end of 2011 activity, which is mildly encouraging.
The Canadian Economy:
The Canadian economy is showing signs it has hit a soft patch, as numbers this week show monthly GDP dipped -.1% and manufacturing was -2.4% against an expectation of a -.1% fall. Fridays employment numbers will also be closely watched. It is not surprising to see a softer patch, as the numbers also soften in Canada’s largest trading partner the US. Next week sees the reporting of manufacturing, construction, housing and trade balance numbers.
The Japanese Economy:
The Japanese economy remains under intense pressure, as the strength of the YEN is unrelenting. Authorities remain poised to intervene again in the currency markets to weaken the YEN, to try and ease the way for the nations exporters. Industrial production numbers have actually increased in Japan in January. However this bounce back is simply making back some of the ground lost, via the impact on its supply chain of the intense flooding in Thailand in late 2011. Next week is again light on economic data in Japan.
The European Economy:
The ongoing issues in the Euro-zone remain confused. On a positive note Italian and Spanish debt are looking more stable this week, while Portugal remains under increasing pressure and the details of a Greek debt swap are still to be agreed upon. An uncontrolled default on debt by Greece would have far reaching implications and would reportedly end up being significantly more expensive that the debt swap alternative, currently under discussion. In the real economy, European unemployment is now at all time highs. Growth remains the central issue for the real economy and at some stage growth policy as well as debt survival, will have to become a priority. Next Friday the European Central Bank (ECB) will announce monetary policy, expect no changes.