Interesting week in economies of note:

Friday 28 October 2011, 3:59PM
By Direct FX Ltd

By Sam Coxhead of

The Australian Economy:
Without a doubt the focus for the week so far has been the inflation numbers released yesterday. It is widely know that the Reserve Bank of Australia (RBA) watch the inflation number termed the “trimmed mean”, as opposed to the headline number. The trimmed mean was +.3% vs an expected +.7%. As a result the interest rate markets have now fully priced in a cut to the cash rate for the meeting next week, even though the RBA have been maintaining their line of “wait and see”. Next week sees the monetary policy announcement on Tuesday, building approvals numbers Wednesday, retail sales figures Thursday and finally the RBA’s quarterly Monetary Policy Statement on Friday.

The New Zealand Economy:
In New Zealand it has been a relatively busy week for major economic announcements so far. Tuesday’s much lower than expected inflation numbers pointed towards the Reserve Bank of NZ (RBNZ) maintaining their wait and see approach to cash rate hikes. A touch surprising was their assessment that they would be hiking rates if the NZ economy was only mildly effected by events offshore. The market reaction has been somewhat mixed and whilst the NZD is higher across the board, the interest rate market is just marginally higher in yield. Next week sees building numbers Monday, the quarterly labour cost index Tuesday and the all important employment numbers on Thursday.

The US Economy:
In the US economy there have been mixed message so far this week. As it struggles to produce sustainable economic growth, this is to be expected. The economic data of late has seen a pickup from the lower levels seen in the past month or so. This week durable goods (bigger ticket items) numbers and new homes sales numbers have both been better than expected. Dragging on sentiment however have been worse than expect corporate earnings results, from the like of Amazon and Netflix. With so much focus currently on Europe, movements in the US are having a slightly less dominant effect on the wider market. Last night the advanced GDP numbers were released and these were healthy and matched the expectations of a 2.5% rise in the 3rd quarter.

The European Economy:
This week’s much heralded EU summit started to fall over in terms of definitive results, before it even began. The first sign was when the preceding EU finance ministers meeting was cancelled. It quickly became clear that there remain sticking points in the plan to save Europe from its debt implosion. But since expectations have been lowered, some good ground was actually made up. Its appears there have been agreements on the levels on European bank capitalization, at around 9%. And the size of the fire power of the European Financial Stability Fund (EFSF), of around a trillion EURO. The final hurdle at this stage was an agreement of the size of the percentage of Greek debts to be written off by private institutions, finally confirmation came that a deal was done that outlined a 50% write down of Greek debt on a voluntary basis . At any rate, it is unlikely that workable programs will be in place anytime soon. The EURO area economic data continues to be down beat and international pressure in mounting on the ECB to move towards some kind of quantitative easing if its own. The current uncertainty is likely to remain for some time yet, as will the associated high level of market volatility. On a positive note, there seems to be some kind of efforts emerging from the Chinese, to officially come in with some IMF external support for European debt markets, albeit just talks between Sarkozy and Hu-Jintao, at this stage.

The UK Economy:
The UK economy has been light on top tier economic data so far this week. By far the most closely watched UK event was the speech by Bank of England (BOE) head Mervyn King. King pointed out the BOE had very few tools to encourage lending to small business and this would be the work of the Govt. He touched on the latest quantitative easing (QE) program and its impact on inflationary pressure. He stated that QE would add little pressure to inflation that was expected to fall sharply in 2012 and the UK was currently going through a very hard period economically, but the UK had a very credible medium term fiscal plan. Last night BOE member Fisher came out with further negative comments, stating there was a distinct chance of a return to recession for the UK. Next week sees a return to the usual flora of economic data. Tuesday sees the release of housing, manufacturing and preliminary GDP data, ahead of building data Wednesday, and services data and the BOE inflationary report hearing on Thursday.

The Japanese Economy:
In Japan almost the entire economic focus has been on the continued strength on the YEN. With the YEN setting new records levels against the USD, speculation remains rife that the Japanese authorities will be stepping in again to intervene, at some point. At this stage they are concentrating their efforts on the program of funding foreign asset purchases, but this is a medium term initiative. The domestic economy continues to struggle with the level of the YEN , however it seems unlikely that anything will come to fruition ahead of the Euro zone sorting out there problems.

The Canadian Economy:
First up this week saw the release of retail sales, out at .4% as expected. The Bank of Canada (BOC) has dominated the rest of the week, leaving the cash rate unchanged at 1.0% as expected, but surprising the market with downward revision of its growth forecasts, with 2011 now estimated at 2.2% down from 2.9%, and 2012 now 2.1% down from 2.8%. They also removed any reference to higher cash rate policy, which is in line with their lowering of domestic economic forecasts. 

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