Australian business confidence may have stabilised but business conditions worsened in the past month according to the latest monthly survey from the National Australia Bank.(See story below)
The survey adds to the feeling that Australians are still worried about the outlook: last Friday’s consumer confidence report from the Morgan polling organisation showed it falling to another record low, and that sets the scene for a repeat when the Westpac/Melbourne Institute survey is released today.
But while Australian business and consumer confidence is being hit by the anti-inflation campaign and higher interest rate regime from the Reserve Bank, spare a thought for the US where for the second time in a week two separate comments by US Treasury secretary, Hank Paulson and Federal Reserve chairman, Ben Bernanke have moved markets sharply.
A week ago comments by Paulson and Bernanke on the value of the US dollar saw the currency stabilise and then rise sharply against the euro and the yen: the Fed chairman also left a very clear hint that the central bank would not be cutting rates because it was worried about inflation and price pressures in the US economy.
But that was undone by the very public musings of the European Central Bank president, Jean Claude Trichet who on Thursday signalled the strong chance of the ECB boosting its cash rate next month by 0.25%.
Then on Friday the poor US jobs figures for May, and those comments by the Israeli minister and the dollar headed south, ending up with the biggest fall against the euro in two months, after that nice surge earlier in the week.
Wall Street fell by 3% and was essentially flat to weak overnight and the local market yesterday was down by well over 2%, while other markets in Asia were again weak. China’s market fell to a 14 month low on that lift in official reserve ratios we reported yesterday.
But will sentiment change as markets digest the upshot of the latest statements from Mr Paulson and Mr Bernanke? After all, the Fed chairman clearly said the US economy was better than a month ago.
The US Treasury secretary explicitly didn’t rule out intervening to support the greenback in a TV interview earlier in the US. That’s a rare and very deliberate comment by him and designed to try and put a base under the weak currency.
He said in an interview with CNBC that he would "never” rule out currency intervention to prop up the dollar. That saw the greenback head higher against the euro, yen and the Aussie dollar which ended 1.5c under the 96.47 it reached Monday afternoon in local holiday trading. It was around 94.50 USc late overnight trading in New York. The US dollar hit a three month high against the yen in the wake of the two comments and rose strongly last night, sending most commodities lower..
Adding to this was the very explicit comments made by Mr Bernanke about the relative health of the US economy.
In a speech Monday night, US time he said that the economic outlook has improved from a month ago, and central bankers will "strongly resist” any easing confidence in stable prices.
That was taken to mean that he no longer sees Fed expectations of a further slump by the economy and that there will be no more rate cuts, but perhaps no rate rises for the rest of the year.
The title of the speech was very direct and made clear the focus" Outstanding Issues in the Analysis of Inflation"
"Despite the unwelcome rise in the unemployment rate that was reported last week, the recent incoming data, taken as a whole, have affected the outlook for economic activity and employment only modestly. Indeed, although activity during the current quarter is likely to be weak, the risk that the economy has entered a substantial downturn appears to have diminished over the past month or so," he said.
"Over the remainder of 2008, the effects of monetary and fiscal stimulus, a gradual ebbing of the drag from residential construction, further progress in the repair of financial and credit markets, and still-solid demand from abroad should provide some offset to the headwinds that still face the economy.
"However, the ongoing contraction in the housing market and continuing increases in energy prices suggest that growth risks remain to the downside," the Fed chairman started his speech, making it very clear to listeners and the markets his new view on the economy."
And on inflation he said :
"Inflation has remained high, largely reflecting sharp increases in the prices of globally traded commodities. Thus far, the pass-through of high raw materials costs to the prices of most other products and to domestic labor costs has been limited, in part because of softening domestic demand.
"However, the continuation of this pattern is not guaranteed and future developments in this regard will bear close attention. Moreover, the latest round of increases in energy prices has added to the upside risks to inflation and inflation expectations.
"The Federal Open Market Committee will strongly resist an erosion of longer-term inflation expectations, as an unanchoring of those expectations would be destabilizing for growth as well as for inflation."
They are very unambiguous statements for a central banker, especially one like Mr Bernanke who has to juggle tensions inside the Fed between the anti-inflation flat earth society appointed by President Bush and those who take the view that the economy has to be allowed some room to breathe and policy to act over time.
Earlier Monday another important speech was mad
