By Sam Coxhead of www.directfx.co.nz
The Australian Economy:
A mixed week for Australian economic data. Retail sales numbers on Wednesday were lower than expected and saw the AUD come under pressure immediately following the release. The real surprise of the week came from the demonstrably stronger than expected private capital expenditure number. The 6.4% quarterly increase was against an expectation of a 4.1% rise. Unsurprisingly the strength was mostly driven by mining investment, and re-iterates the two tier nature of the Australian economy. Next week is very important week with the Reserve Bank of Australia (RBA) monetary policy decision, GDP numbers and the latest employment data. It is likely that we will see a cut from the RBA, with the market pricing at least 25pts of easing. Normally the market would be less confident of a move given the GDP and employment data comes after the decision. But the European inspired risk aversion, probably means the RBA will be comfortable in giving the market what it is pushing for at this time.
The US Economy:
Interestingly US economic data has been softer and towards the lower end of expectations so far this week. Housing, manufacturing and consumer confidence indicators have been soft, but preliminary GDP number as expected. Employment numbers later today will be closely watched. Whilst the prospect of further monetary stimulus from the FED is not imminent at this time, it remains a tool that the FED would use if the situation in Europe deepens further and materially impacts on the staggering US recovery. Longer term interest rates have hit an all time record low, as the global risk aversion has seen a flood of funds into US dollars and fixed income. Next week sees various services and manufacturing numbers due for release. FED chairman Bernanke also makes his semi-annual monetary policy update to government, and his remarks will be closely monitored for any clues to future monetary policy.
The UK Economy:
It has been a very quiet week for economic data in the UK. Of note has been the move on interest rates to record low levels as investors to have rushed into government bonds as the risk aversion increases with uncertainty in Europe. Europe remains the primary concern for the UK economy and comments from various Bank of England (BOE) members have re-iterated this. Further quantitative easing will likely come at some stage should the stresses continue in Europe. Next week sees the BOE the focus with its monetary policy decision on Thursday. They will likely make an unchanged decision at this meeting, and therefore there will be no accompanying statement. Construction and services numbers will also be watched, but sentiment will likely be led by further developments, or lack of, in Europe.
The New Zealand Economy:
The NZ economy has had a very quiet week for data. The NBNZ Business Confidence survey has been the sole focus and unsurprisingly this showed a dip in confidence from the previous reading. This is certainly in line with other indicators and the softer global outlook of late. The NZD finished the May months as the worst performing of the top traded currencies (G10). This is typical of the price action when large scale liquidation of NZD holdings takes place and the relatively shallow liquidity in the NZD market is exposed. The NZD has stablised and taken back some of its lost ground this week, excluding the USD and YEN, as the bulk of the asset reallocation has taken place for the time being. Next week is again quiet for New Zealand economic data, but the RBNZ comes into focus with its monetary policy decision on the 14th , the week after.
The Canadian Economy:
The Canadian economy has been off the radar so far this week. Later on today the focus comes in with the monthly GDP numbers. A bounce back to +.4% is expected from the -.2% previous result. Next week sees a return to a busy economic calendar. Building numbers and a likely unchanged Bank of Canada (BOC) monetary policy decision are due Tuesday. Thursday sees the release of the monthly manufacturing numbers and on Friday employment and trade balance numbers will be released. Given the current global environment, any expectations of a rise in the cash rate from the BOC in very unlikely to come anytime soon.
The Japanese Economy:
The Japanese economy has had only second tier economic data this week, spending and various retail sales numbers were close to expectations, and industrial production and earnings numbers were a little soft. Various Japanese officials have been out waxing lyrical about the unsustainably high level of the YEN, and expect this to be an ongoing theme. Given the current environment, they are likely to keep any material actions up their sleeves for use should the European banking crisis deepen further. Next week sees the release of the current account and final GDP release on Friday.
The European Economy:
The train wreck in Europe may have actually gathered some speed this week, and again is dominated global sentiment. Banking sector stress in Spain is evident and building and there is little evidence of ability from any officials at this time to provide a solution. Between the EU,IMF ,ECB and various national and European wide officials, there has been very little achieved and even decided on. Expect this noise to continue and the uncertainty to remain high. The polls in Greece reveal a seesawing electorate that appears split on whether or not to back pro or anti bailout policy. The June 17th election looms as a very important date for both Greece and Europe. If some kind of Europe wide banking support package comes through alongside a pro-bailout vote in Greece, catastrophe maybe avoided. The EURO remains under pressure across the board as capital flight continues. Within Europe the debt markets remain stressed with non German-Franco funding costs pushing higher, while German two year yield is pushed to 0.00, just the actual return of your funds.
Of note :
If some kind of Europe wide banking support package comes through alongside a pro-bailout vote in Greece, catastrophe in Europe may be avoided. The EURO remains under pressure across the board as capital flight continues. Within Europe the debt markets remain stressed with non German-Franco funding costs pushing higher, while German two year yield is pushed to 0.00, just the actual return of your funds. Spanish debt remains the most vulnerable. The EU has indicated they are willing to give Spain another year to meet deficit targets. Given the high funding costs, this would seem a big step. So some kind of bailout is likely to ensure at some stage. Adding to the complexity is a slowing Asian economy. The latest evidence of this being today’s Chinese manufacturing index which shows a dip from the previous reading of 52.2 to 50.4.