ABOUT RBA
Global Overview 26th July
Last week continued to show divergence between Europe and the US, both in data and attitude to their problems. The data releases coming from Europe are generally positive, some of them surprisingly so, whilst the data from the US is enerally poor. This is a shift from previous months and underscores some of the move away from the USD and back towards the euro and other currencies.
What is interesting is that Europe is now following a path of austerity, whilst the US remains in stimulus mode. From the White House to the Federal Reserve, the talk is how to help the ailing US economy. The US is even unhappy about European austerity with the White House stating that “the European recovery is at risk because of increased uncertainty while government stimulus is withdrawn, and a further slowdown in Europe would pose problems for the rest of the world whose exports to Europe may be reduced.”
Having said that, the US has its own problems. Sales of previously owned US homes hit a 3 month low in June, whilst new claims for jobless benefits rose 37,000 to 464,000 last week, more than erasing a decline in the prior week. Comments from Federal Reserve Chairman Bernanke that “We are ready and will act if the economy does not continue to improve, if we don't see the kind of improvements in the labour market that we are hoping for and expecting” did not help. He said he stood ready to ease monetary policy further if the US recovery and job creation withers. He said the US economy faces “unusually uncertain” prospects and still needed fiscal support now and it did not make sense to try to rein in this year's deficit. This year's deficit is expected to be around 10% of GDP.
