Australia Holds Firm on Policy

Analisi Giornaliera - 02/02/2016

Reserve Bank of Australia Leaves Rates Unchanged Amid Low Inflation

The RBA announced interest rates will remain unchanged as inflation remains far from the elusive goal set by the Central Bank in spite of resilient employment and job creation. Turmoil in the region combined with the slump in energy prices saw policymaker leave the door for additional action on rates if deemed necessary to meet the inflation target of 2.00-3.00%.

EU Manufacturing Stagnates

European manufacturing figures remained in expansionary territory during the month of January, staying static and matching expectations according to the report from Markit Economics. The Euro Area manufacturing PMI for December printed at 52.3 as new orders and exports declined while employment and inventories advanced. On a constituent level, major economies in the monetary union reported mixed data. Spain reportedly experienced an uptick in January to 55.4 from prior revised 53.0, whereas Italy saw a decline to 53.2 from 55.6 over the same time period. France remained flat at 50.0, the exact threshold separating expansion and contraction, while Germany underwent expansion of 52.3, slightly higher than December’s 52.1 figure. Despite the positivity of the readings, the European Central Bank is foreshadowing additional stimulus to be announced in the upcoming March meeting, fearing the Euro Area may experience deflation if more aggressive actions are not undertaken.

Australia Keeps Policy On Pause

The Reserve Bank of Australia has opted to leave monetary policy unchanged for a 9^th consecutive month. During this period, the key interest rate has been left untouched at a record low 2.00% as policymakers attempt to steer the economy through a prolonged period of deflationary pressures and falling exports. Despite the recent global financial turbulence emanating from Chinese markets, recent economic data shows that the economy remains robust, especially in the labor market. According to RBA Governor Glenn Stevens, inflation is still a concern as pressures on commodity prices have failed to abate, with rates anticipated to remain highly accommodative for years to come. If inflation persists at levels distant from the RBA’s targeted 2.00-3.00%, the Central Bank is expected to ease monetary policy even further. The Australian dollar gained momentary strength during the announcement, with the currency climbing to 0.7129 against the US dollar.

US Spending Stagnates

American citizens saved their earnings over the month of December according to the latest personal consumption data released by the US Bureau of Economic Analysis. Personal spending reportedly dropped to 0.00% in the month of December after having climbed to 0.30% during the prior month. The report also showed that wages rose by 0.30%, matching the amount recorded in the prior period. Wage growth will hopefully add to upward pressure on spending which accounts for nearly 70.00% of the US economy. If income continues to grow, this in turn will help boost consumption in the year ahead. While Federal Reserve opted to keep monetary policy unchanged in the last meeting after growth tapered even further following the policy liftoff, data from the Commerce Department may see policymakers reconsider their options for future interest rate hikes.

British Manufacturing Climbs

Manufacturing in the United Kingdom reached a 3-month high on the shoulders of surging domestic demand, while trending in expansionary territory for 34-consecutive months. According to the Markit report, the Manufacturing Purchasing Manager’s Index rose to 52.9 during the month of January, a value exceeding both the prior month’s revised 52.1 and forecasts of 51.8. The survey reported a decline in new orders for exports due to a prolonged deterioration in global demand, namely from the Euro Area after the Pound recorded tremendous gains versus the Euro over the last few years on the rapid monetary policy divergence. Domestic demand has offset the weakness of exports to a degree while continuing to being the major driver of GDP growth. Selling prices experienced declines reflecting falling input costs as global commodity prices continue to plummet. The Pound rallied in-line with other risk assets, reaching a high of 1.4317 versus the US dollar.