Economies of interest this week : 21 September 2012

Friday 21 September 2012, 5:09PM
By Direct FX

Written By Sam Coxhead at

The Australian Economy:
The Reserve Bank of Australia (RBA) monetary policy meeting minutes were released on Tuesday. As widely expected they reveal an openness from the RBA to further easing in the cash rate should the global economic outlook continue to soften. Indeed many of the caveats to easing further have subsequently played out, or at least have moved closer to playing out, since the meeting took place. Certainly expectations are for one if not two 25pt easing in the interest rate in the next three meetings before the end of 2012. Of note has been the re-affirmation of Australia’s AAA credit rating by agency Standard and Poor’s. Also the IMF issued their Australian report this week, and it did not make for bad reading. They see growth at 3.25% this year and their outlook is broadly favourable. Appropriately they note that Australia is in a position of having the monetary and fiscal capabilities to handle adverse shocks to the economy. And this is an important point and goes quite away to explain how the AUD remains at relatively lofty levels when the recent indicators have softened somewhat.  If things do become more difficult for Australia, they are in a enviable position of having options at their disposal to stimulate growth. And this is what gives investors confidence to buy the Australian dollar. Next week is empty of top tier economic data in Australia, so expect the lead  to come from the wider market sentiment.

The US Economy:
This week has been relatively orderly for the US economy. Further evidence of recovery in the housing market came in the form of solid homes sales and construction numbers. Manufacturing numbers held up reasonably well, and indeed some parts of the sector are showing some encouraging signs. Rhetoric from various Federal Reserve (FED) officials points towards ongoing debate as to the various merits of the additional QE initiatives announced last week. Certainly the aggressive FED move seems to have sparked another round of competitive monetary policy programs around the globe if this week’s Bank of Japan announcement is anything to go by. Next week sees the usual flurry of announcements with further data on homes sales, consumer confidence, regional manufacturing and the final Q2 GDP numbers to add further colour.

The UK Economy:
It has been an interesting week for the UK economy with inflation numbers proving as stubbornly high as expected. The Bank of England (BOE) monetary policy meeting minutes reveal strong internal debate as to how appropriate any additional QE would be given the only slowly receding inflationary pressure. Retail sales numbers were better than expected and the details reveal surprising activity, with further gains missed out on due to a fall in online activity, over the period of the Olympic games. Next week is relatively quiet for UK  economic data, with the current account number on Thursday providing the weeks focus.
The New Zealand Economy:
This week has seen further positive news for the NZ economy. The Fonterra dairy auction revealed a further recovery in diary prices that will bolster the important diary sector. Volumes were substantial and the average prices gained were 2.4% higher on the month on a trade weighted basis. Finally we got to see the results from the 2nd quarter GDP data this week. Whilst there was a small downward revision from 1.1%  to 1.0% to the first quarters result, the 2nd quarter number was expected to be just .4% and came in at a healthy .6%. The lead in growth was provided by the improved diary results being boosted by a good growing season and improved prices gained. This was coupled with the increasing momentum seen in the Christchurch earthquake rebuild to produce the lead in the better than expected result. This has seen some solid support come into the NZ dollar markets and will be interesting to see how this continues in the coming weeks. Next week sees just the NBNZ business confidence survey results due for release on Thursday.

The Canadian Economy:
It has been a quiet week for data in the Canadian economy. Later on today will see the release of the monthly inflation numbers and these are the sole focus for the week. Next week is a little more interesting with retail sales numbers on Wednesday, ahead of the monthly GDP release on Friday.

The Japanese Economy:
It has been one of the more interesting weeks for the Japanese economy. The BOJ has been the focus with their monetary policy decision on Wednesday. The market was relatively split on whether or not we would see further policy accommodation in the form of additional quantitative easing (QE) or not. We certainly got the additional QE and further strong rhetoric from the BOJ pointing towards further policy easing if the stalling economy warranted it. The moves look to be in almost direct response to last week’s FED move. In a deliberate effort to undermine the stubborn strength of the YEN, the BOJ look to increase their commitment towards exports via a weaker YEN. Next week sees further insight into the BOJ’s thinking when the monetary policy meeting minutes are released on Monday. Inflation, industrial production and retail sales numbers round out the week on Friday.

The European Economy:
It has been a relatively orderly week in the European economy. A business sentiment survey importantly showed good gains from depressed levels. This indicates that the ECB initiatives have been well received by the business community and this rise in sentiment is a good early indicator of progress being made. The monthly manufacturing numbers have been particularly mixed, as they have globally. Whilst Germany has seen a pickup in activity, the rest of Europe remains at depressed levels. One has to think that the recent and significant bounce in the level of the EURO cannot help this type of indicator in any way, and represents a large issue for European policy makers. Of note is the downgrade to growth forecast by the Italian Government, and this kind of revision can be expected elsewhere in Europe. On a positive note Spain has continued to find support in important funding markets, as expectations build for a further support agreement to be initiated between the EU and the Spanish Government. ECB rhetoric points towards the ability to ease the cash rate if needed, but given the stubborn nature of the inflation pressure, this seems unlikely in the current environment. Employment and consumer spending join the latest inflation numbers in being the focus next week, and further murmurings from the ECB will be closely followed.