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The Australian Economy:
It has been an extremely interesting and somewhat strange week for the Australian economy. The Australian dollar is materially weaker across the board as the interest rate market has increasingly priced the odds on a sooner, rather than later, cash rate cut from the Reserve Bank of Australia (RBA). In somewhat ironic circumstances, it comes in a week when there has been little in the way of significant economic data in Australian’s economy, or that of its major trading partners. Sometimes sentiment takes time to gain momentum, but once it does its effect becomes obvious. Next week’s monetary policy decision started with the week with around a 20% chance of a cut to the cash rate priced. Now that figure is around a 50% chance. By the June meeting the cash rate is expected to be 4.00% or below. Expect ongoing volatility on most AUD pairing ahead of the RBA which is undeniably the focus of next week for the Australian economy.
The US Economy:
This week the US economic climate has been marked by a return to downbeat comments from FED Chairman Bernanke. In what the cynical amongst us call an active move to lower the prospects for the US dollar, Bernanke comments that further employment progress will be hard fought, and the economy remains frustratingly sluggish. The upshot has been a move back lower in US interest rates, and a faltering from the US dollar earlier in the week. Pending home sales numbers continue to show a weak housing market and the durable goods sales data was not as robust as expected. A lowering oil price should be making a positive contribution as the US,UK and France look to release strategic reserves to allay supply issues. The final reading for Q4 GDP was unrevised at 3%, a good sign for the economy. The question is, can this level of growth be sustained in coming quarters? It would be a good achievement of this proves to be the case. Next week will be a busy one for US observers, with manufacturing, services and employment numbers all making an appearance.
The UK Economy:
It has been a quiet week for news in the UK economy. The current account numbers were as expected and of no impact. The final GDP reading saw a slightly downward revision from -.2% to -.3%, and housing indicators remain under pressure. The GBP has seen periods of support as rumoured M&A activity continue to do the rounds. As the wider market risk aversion increased towards the latter half of the week, the GBP has outperformed the Australasian currencies. Next week sees a return to a busy economic data schedule in the UK. Manufacturing, services and construction numbers all are due before the Bank of England monetary policy decision on Thursday. No change is expected at this meeting.
The New Zealand Economy:
There has been a distinct lack of material economic data in New Zealand this week. The NBNZ Business Confidence survey saw further gains, adding to the recent recovery from the lows seen late in 2011. The interest rate markets have been steady as expected, and the lead for the foreign exchange market has come from external factors. Next week again sees a quiet economic calendar for New Zealand, but the weekends official Chinese manufacturing numbers will be of influence.
The Canadian Economy:
It has been a quiet week so far for news in Canadian economy. The main focus has been the annual budget, and in true Canadian fashion, this held no surprises. Later on today the monthly GDP numbers will be released and this is really then focus of the week. Next week sees the news come in the latter part also. Building, employment and manufacturing numbers all due for release on Thursday. Easing oil prices with the prospect of releases from US, UK and French strategic reserves will have eased a little of CAD demand this week.
The Japanese Economy:
The recently better news in Japan has continued this week with retail sales numbers coming out showing some real strength. Housing and inflation numbers today were of limited impact. Overnight Japanese Ministry of Finance officials made comments that they were on guard for any rapid strengthening in the YEN following its recent move lower. This halted the demand the YEN was seeing overnight, on the back of lower global stock markets. On Monday the official “Tankan” survey results are realised and should back up recently improved numbers from last week. It will also be interesting to see if the recent YEN demand backs off with the financial year end at 31 March out of the way.
The European Economy:
The EU Summit this week has all but confirmed that a significant “firewall” of bailout funds has been committed to support any member who sees their ability to fund deteriorate. This step has not been without its issues, but is positive. For the most part the debt market movements have been positive of late, but it is a foregone conclusion that there will be period of stress at some stages in the future. The German business sentiment numbers earlier in the week beat expectations, which was a welcomed positive piece of news. The EURO has seen mostly sideways trading against most currencies, while seeing outperformance of the Australasian pairings. Next week will have the European Central Banks monetary policy meeting as the focus. No change is expected , but their comments will be closely monitored as usual.