Economies of interest this week : 12 Oct 2012

Friday 12 October 2012, 4:43PM
By Direct FX

By Sam coxhead of

The Australian Economy:

It has been an interesting week for the Australian economy. The employment numbers were more robust than expected and potentially revision higher could be further coming. The Unemployment rate was 5.4% against an expectation of a 5.3% number, but taking into account the increased participation (65.2) and this is not a bad result. The increased jobs growth was importantly led by full time employment. Wednesday’s news of increased activity at Chinese container ports is anecdotally positive for the Australian economy and this balanced the downward revision of the IMF’s global growth forecast for 2012 and 2013. The expectations for easing in the cash rate below 3.0% by the end of the year by the RBA have been pared back following the employment report, and this is AUD positive in the short term at least.

The US Economy:
It has been a quiet week for news in the US economy. The Federal Reserve’s “Beige Book” reveals modest growth across the US. Improvements being seen in housing and vehicle sales, while general consumption is flat to up slightly across the 12 regions surveyed. The weekly jobless claims numbers were surprising in that they fell much more than expected and are at levels not seen since February 2008.  The pending “fiscal cliff” is cited as the major risk to growth in the short term. At midnight on December 31st the Budget Control Act 2011 is scheduled to come into place and this will result in increased taxes and reduced spending, effective overnight. This is called the “fiscal cliff”. There are various paths policy makers can take to alter the path, that look increasingly likely it would derail the fragile growth currently being seen. Add to the mix the Nov 6th election and the ground is set for a very interesting remainder of 2012 for the US economy. Next week retail sales, inflation numbers, manufacturing and homes sales numbers provide a focus alongside the increasingly colourful run up to the November 6th election.

The UK Economy:
In what has been a mostly quiet week for economic data in the UK, the latest manufacturing numbers provided some reason for disappointment. They came in at -1.1% on the month and the previously months increase was revised down .1% also. Interestingly, the IMF issued a statement saying it recommended the UK defer further spending cuts if the growth rates continue to disappoint. Whilst conceding the economy has struggled more than forecast, the Conservative Party PM David Cameron has re-iterated his plans to cut the deficit and get the national finances back on track. Creating interest around the BOE has been debate on whether or not further stimulatory efforts from the BOE would create sustained inflationary pressure and importantly, adjust expectations around pricing pressures. Expectations have been for further monetary easing from the BOE at the coming meetings, but with debate such as this, nothing is guaranteed. Lower chances of further stimulation would certainly be GBP positive in the short term, so focus on the BOE will intensify as we approach the next meeting on the 9th November. Next week will see the release of the previous meetings minutes on Wednesday and these come alongside the inflation number Tuesday and retail sales figures on Thursday.
The New Zealand Economy:
It has been a relatively quiet week for economic news in New Zealand. The Institute for Economic Research released their quarterly survey of business opinion and this revealed a small rebound in confidence from levels in the 2nd quarter. Countering this positive influence was evidence from the BNZ manufacturers survey that shows a much lower “new orders” component, pointing to lower activity in the coming months. The latest consumer confidence survey also reveals that expectations about the economy have lowered in the last month as the outlook in key markets of Asia and Australia has become more clouded. Next week sees the quarterly inflation numbers due for release on Tuesday, but thanks to the high level of the NZ dollar, the rate will likely be towards the lower level of the targeted band and be of limited influence in the current environment.

The Canadian Economy:
In Canada this week the only piece of economic data has been the trade balance numbers and these were broadly as expected and subsequently of limited impact on demand for the Canadian dollar. Next week sees the release of the Bank of Canada business outlook survey on Tuesday, manufacturing sales Wednesday and the latest monthly inflation numbers on Friday. The next BOC monetary policy meeting is on 24 October, but again no change is expected to the 1.0% cash rate.

The Japanese Economy:
The constant attention on the relative strength of the YEN continues from Japanese authorities, and the YEN continues to be strong. Japan’s economy minister Maehara is the latest to verbally unleash, saying that Japan can, and may intervene to curb the strength of the YEN, even without consent of the US. Unilateral interventions are notoriously unsuccessfully, but Japanese officials seem hell bent on trying to talk the YEN lower. The latest BOJ monetary policy meeting minutes again state they are prepared to initiate further action to curb the YEN strength if required. Next week’s focus will be dominated by two speeches by BOJ head Shirakawa in the absence of any material; economic data releases.

The European Economy:
It has been a curious week in Europe that has seen a credit down grade of Spain, but its debt markets continue to see demand. This indicates the markets anticipation of a Spanish approach for funding assistance at some stage. The likelihood is that it will come after elections in a couple of weeks. Interestingly, industrial production numbers in Italy and Spain were stronger than expected this week and picked up on the month by 1.5 and 1.7% respectively against expectations of declines in activity. Greece is expected to be given further time to make the deep required cuts to placate those providing funding through its darkest hours, although this is unlikely to ease the unrest in the general populace in the short term. Next week the focus comes from the latest inflation and economic sentiment numbers, ahead of the important manufacturing numbers the week after.


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