Economies of interest- 15 June

Friday 15 June 2012, 5:31PM
By Direct FX

By Sam Coxhead of

The Australian Economy:
The Australian economy has been firmly off the radar this week, as it has had little in the way of domestic economic data. Expectations of an increase in  demand for exports have come from moves, and rumoured further moves, by Chinese authorities to boost flagging Chinese growth. These have come in addition to further stimulation expected from the BOE, ECB and the FED in coming months. Interestingly Moody’s has stated that Australia’s AAA credit rating and outlook remain stable. Adding that Australia has a low level of susceptibility to event risk and is in one of the strongest positions of the AAA rated countries. Next week’s domestic focus comes on Tuesday in the form of the minutes from the RBA’s monetary policy meeting last week.

The US Economy:
This week has seen a tone of softer economic data in the US. Retail sales numbers were disappointing and weekly jobless claims numbers were higher than expected. Business inventory numbers hit expectation and the inflationary pressure has eased with a lower crude oil price in recent months. Tomorrow sees various manufacturing and consumer sentiment numbers, which will be closely watched. Rhetoric from various FED board members continues to point towards further stimulation if required. This comes ahead of next week’s monetary policy decision from the FED on Wednesday. This decision and associated economic projections and comments, are undoubtedly the highlight of the week coming in the US. US debt remains very much in demand, even as the US dollar has seen broad weakness. This weakness has emerged as the currencies see short covering emerge, ahead of the Greek elections this weekend.

The UK Economy:
A relatively quiet week for UK economic releases. Monthly manufacturing numbers were weaker than expected. Expectations have grown further of increases to the QE program, at the next BOE meeting in July. Goldman Sachs has released a research note as such, and BOE Governor King commentated that the case for monetary easing is certainly growing. The GBP has suffered as a result, along with seeing selling pressure against the EURO, as hopes of a pro-bailout election result in Greece gained momentum in yesterdays offshore session. Next week sees the release of the previous BOE monetary policy meeting minutes on Wednesday. Other highlights will be the inflation number on Tuesday and retail sales number also on Wednesday. Of overriding influence will be the playing out of the election tragedy in Greece.

The New Zealand Economy:
The RBNZ this week left New Zealand’s cash rate at 2.50%, as expected. In a very balanced statement the overriding risks to the NZ economy emanate from the ongoing turmoil in Europe, and its impact on New Zealand trading partners. The current central RBNZ assumption is that Europe will not collapse and the NZ cash rate will remain unchanged for an extended period, well into 2013. However should the worst case scenario eventuate, they have room to cut the cash rate to stimulate domestic demand, if required. Current account and fist quarter GDP numbers are due for release on Wednesday and Thursday next week, and represent the domestic focus for the NZ economy.

The Canadian Economy:
The Canadian economy has been off the radar this week with nothing in the way of domestic economic data to digest. Next week this changes with retail sales numbers on Thursday and the inflation numbers Friday. With the CAD closely correlated to the US dollar, the weekend’s Greek elections will be of significant interest. The prospect of easier monetary policy around the globe, in the second half of 2012, should see the CAD in demand over the medium term.

The Japanese Economy:
Rhetoric from the BOJ and MOF officials in Japan has continued this week. Today’s BOJ monetary policy decision will be of interest. It would surprise to see initiatives made ahead of the Greek elections, but nothing can be ruled out in the current environment. Next week sees the trade balance and monetary policy meeting minutes on Wednesday the focus. Obviously the developments in Europe will be of significance. Should we see risk aversion increase as a consequence of the Greek elections, expect the Japanese officials to back up their recent rhetoric with some direct intervention at some stage.

The European Economy:
Positive sentiment from the approach by the Spanish for banking sector support was very short lived. Pressure has again built on the Spanish Government debt markets and this has seen yields push to a record high and unsustainable levels. It was hoped Spain could decouple its banking sector from the Government funding woes, but this seems increasingly unlikely. A further possible bailout for the Government will have far reaching consequences, especially for the likes of Italy who are scrambling to get spending in order. In the short term the Greek election this weekend remains the focus. Recent sentiment has been surging towards a pro-bailout result, but this seems very uncertain. Economic data remains very downbeat outside of the European core, and with a pull back in the oil price recently, inflation should remain in control. This will enable further easing of monetary conditions from the ECB at the very least. Next week European manufacturing and German sentiment numbers will be followed. But economic concerns are briefly secondary to financial issues at present, so expect further focus on Government debt markets and bank sector solvency.

Of note:
The Greek elections will hopefully throw up some kind of result one way or the other. A state of limbo rarely leads to positive outcomes, so hopefully a definitive result can be found. It is certainly time for the Greek electorate to decide which medicine to take. The EU will rightly make it very uncomfortable for Greece, or any other member, to leave the Euro-zone.

Aside from Greece, a European wide banking support solution is looking increasingly likely and expect the cultural differences to be exposed. Germany will lead any initiative in both ideas and financial grunt. Expect those receiving support to be called upon to cede some kind of control for the pleasure of being involved. No doubt the coming months will be far from straight forward. Uncertainty will remain at elevated levels, but we are at, or very close to some kind of cross roads in the Euro-zone’s history.

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