By Sam Coxhead from www.directfx.co.nz
The financial markets were moribund for the most part last week. Summer holidays in the northern hemisphere have seen materially lower levels of activity for extended periods. This has meant a continuation of the recent range bound price action for many pairs. The economic news remains mixed as is widely expected across the globe. In Europe the political maneuvering continues as the periphery push for the easing of budgetary constraints remain in efforts to salvage growth. This comes as signs of further slowing in the engine room economy of Germany become more evident. Prospects for the 2nd half of 2012 seem a little more stable in the likes of the UK and the US. The recent consolidation of important consumer sentiment numbers seems likely to follow through to more energetic spending. Things continued to tick over in Australasia in what was a quiet week for economic news. Interest was sparked in Australia late in the week as a Treasury report pointed towards further cash rate easing from the RBA. The high level of the Australian dollar being blamed for the stagnant non-mining economy.
Last week saw only second tier economic data released in Australia. Surveys revealed a bounce in business confidence, but another fall in consumer sentiment. In a week lacking excitement and leading to relatively small ranges for most pairings, the focus came on Friday as a report from the Australian treasury pointed out the potential for further easing to the cash rate if conditions deemed it appropriate. This week sees the central bank focus continue with Tuesday’s release of the meeting minutes from the last RBA monetary policy decision. RBA Governor Stevens also features as he speaks on the economy in Canberra on Friday.
Second quarter retail sales numbers were the focus in the New Zealand econom6y last week. Whilst the result was close to expectations at +.9% growth for the quarter, it was the upward revision of the previous first quarter reading that produced the surprise. This week coming sees another lean data calendar. The only release of note are the RBNZ inflation expectations survey results on Tuesday.
Last week materially stronger than expected retail sales numbers for July provided the initial burst of energy in US markets. Inflation numbers again proved benign as the economy continues its slow recovery. Weekly jobless claims numbers also continue their recent improvement and maintain hopes for further strength in the labour market for the remainder of 2012. Improving consumer sentiment numbers mirror the labour market improvement, but the enthusiasm was tempered by a further softening in manufacturing numbers. This week will see the focus come from Wednesday’s release of the minutes from the FED’s previous monetary policy meeting.
The contraction in 2nd quarter European economic growth was released at -.2% as expected. The stagnating economy is a byproduct of the enforced austerity measures in the south, and is providing a focus for frustrated Europeans. Expect the political cajoling to increase as German growth stumbles, also expect Spain and Italy to remain in the cross hairs in the short term. This week sees the European manufacturing numbers released, and these provide the focus for the week. We expect further range trading from the Euro ahead of the September 6th monetary policy meeting of the European Central Bank (ECB).
Sentiment was surprisingly buoyant in the UK last week. Higher than expected inflation numbers point to a lower chance of further easing to the record low cash rate. Better than expected employment numbers were joined by a materially better than expected retail sales report. The Bank of England (BOE) monetary policy meeting minutes point towards a stable cash rate as the effects of the recent efforts to increase bank lending are passed. The focus of the coming week is the release of the final 2nd quarter GDP numbers on Friday.
Weaker than expected preliminary 2nd quarter GDP numbers dented sentiment in the Japanese economy last week. Further punishment was avoided when an upward revision of the 1st quarter number was taken into account. The market believes Japanese authorities will act to weaken the YEN if required and this has tempered demand for the YEN over the last few weeks. This week’s focus comes from the trade balance numbers on Wednesday, ahead of the speech by the Bank of Japan (BOJ) head on Friday.
The Canadian dollar saw reasonable demand last week. This came in the face of lower than expected inflation and manufacturing numbers. Increased merger and acquisition buying of CAD in the last month or so could well continue to provide latent demand in the short term. This week’s focus comes from the July retail sales numbers due for release on Wednesday
Major Announcements last week:
• NZ Retail Sales 2nd QTR +.9% vs +1.0% expected
• UK Inflation 2.6% vs 2.3% expected
• US Retail Sales +.8% vs +.4% expected
• US Inflation +.1% vs +.2% expected
• UK Retail Sales +.3% vs 0.0% expected
• US Philadelphia FED Manufacturing Index -7.1 vs -4.7 expected
• CAD Inflation -.1% vs +.2% expected
• US UoM Consumer Sentiment 73.6 vs 72.5 expected
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