Economies of interest this week : 29 June 2012

Friday 29 June 2012, 5:45PM
By Direct FX

By Sam Coxhead of


The Australian Economy:
It has been a quiet week for Australian economic data this week. Private sector credit numbers reveal a .5% increase as expected. Interestingly, but of indirect impact, various Government institutions in China have released notes pointing towards further stimulation from Chinese authorities to support flagging Chinese growth. Both easing of interest rates and lending ratios at banks to increase lending have been talked of coming in the near future. Over time this will positively impact the Australian economy that is reliant on Asian trading partner growth for growth of its own. Next week sees the release of Building numbers ahead of the latest RBA monetary policy decision on Tuesday. No change is expected from the RBA at this meeting. Retail sales numbers follow on Wednesday and the trade balance on Thursday.

The US Economy:
The economic numbers in the US this week have recovered a little from their recent weak trend. Encouragingly housing numbers continue to show improvement with new and pending home sales numbers stronger than expected. Consumer confidence is slightly lower and durable goods orders were mixed. The final Q1 GDP number was released unrevised at 1.19%. Next week is a busy one in the US. Manufacturing numbers on Monday start things off and are followed by non-manufacturing and weekly claims numbers on Thursday, ahead of the all important employment numbers on Friday. Whilst the QE tool remains in the FED tool bag, the odds on further use have decreased of late as the hurdle for use seems to be higher than the market expected. This is mildly US dollar positive.

The UK Economy:
It has been a relatively quiet week for economic data in the UK this week. Public sector borrowing and the trade deficit were both larger than expected and comments from the BOE board were more downbeat than many would have expected. Europe remains the primary concern for the British economy, and this is unlikely to change in the short term. Do not discount a lower cash rate from the BOE should the economy continue to struggle for growth. Further QE action is likely and has largely been built in the market for the BOE’s next Thursdays meeting. Manufacturing numbers on Monday will also be closely followed.

The New Zealand Economy:
The NBNZ Business Confidence number on Monday revealed another dip in confidence. This result is unsurprising given the fickle nature in offshore markets and was of limited impact to the demand for the NZD. Interestingly the trade balance was as expected but the numbers show increased energy in the economy with both exports and imports materially higher than expected. Next week is devoid of New Zealand economic data, so expect the lead to come from offshore markets once again. The conclusions of the ongoing EU summit will set the tone, and the RBA monetary policy announcement on Tuesday will be closely watched.

The Canadian Economy:
It has been a quiet week so far for economic data in Canada. Later on today the week’s highlight is released and comes in the form of the monthly GDP numbers. Of note is the continuing appreciation of the Canadian housing market, particularly in the east. This bubble remains a central focus for the BOC and further measures to stem the enthusiasm are likely to be forth coming. Next week sees the focus come again on Friday with the scheduled release of the employment and manufacturing numbers.

The Japanese Economy:
It has been an interesting week for Japanese watchers. A vote to double the sales tax over the coming years has seen the political landscape torn and changes to leadership are now possible in the short term. Retail sales and household spending numbers were released stronger than expected and the deflationary pressure came in slightly less than forecasts. Next week sees the release of the important manufacturing numbers on Monday and these will help set the domestic tone for the week. Further speculation around possible intervention to weaken the YEN remains. The EU summit remains the key in the short term, a positive result would weaken the YEN and take the pressure on Japanese authorities to some extent.

The European Economy:
In Europe the build up to the EU summit saw major positioning take place. Expectations were reduced somewhat when the Greek PM and finance minister were forced to withdraw due to illness. Details have emerged about the proposed 120 billion Euro growth and employment pact, albeit the finalization of this yet to take place. There are a myriad of suggestions being covered and expect the final feeling on the summit to eventuate over the weekend. It is coming down to length at which will be taken to secure acceptable funding rates for Spain and Italy. With so much noise in Europe the economic data is somewhat secondary in the short term. There is potential for volatility on Monday as market sentiment is set the week’s trading opens.

Of note :
Headlines have finally emerged from the EU summit. It looks like the direct recapitalization of the banking sector has been accepted. The ECB looks to come the overall banking supervisor by December in a move than decouples the banking sector from the respective Governments to a certain extent. It also looks like it will be easier for nations to approach for assistance,  making it more palatable for the electorates to take. Of course it also means there is less control on how the funds used and what austerity measures are taken. In the short term it looks good, but in the long term its looks like it could make things potentially worse. Italy have already stated that they will not be seeking assistance at this time.

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