World week ahead: How to revive growth

Monday 30th August 2010

US data due out this week may do little to ease concerns that the world’s biggest economy is stumbling.

Jobs figures due from the Labor Department this week are expected to show the unemployment rate crept up to 9.6% from 9.5%. Private payrolls may have grown by 47,000 in August, according to a Bloomberg survey, down from a 71,000 gain in July. The figures are due out on Friday in the US.

An Institute for Supply Management manufacturing survey is expected to show a reading of 52.8 in August on a scale where anything above 50 signals expansion. That’s down on the previous month’s reading and would be the weakest pace in 11 months. The ISM report comes out on Wednesday in the US.

The data follows the Federal Reserve’s symposium in Jackson Hole, Wyoming, where chairman Ben Bernanke described jobs growth as “painfully slow” and vowed the central bank would do all in its power to maintain economic expansion.

Stocks advanced on Wall Street on Friday, pushing the Dow Jones Industrial Average back above the important psychological level of 10000 after the Commerce Department said the economy grew at a 1.6% annual rate, seasonally adjusted, in the second quarter.

While down from the department’s initial estimate of 2.4%, the drop-off wasn’t as bad as some economists had predicted. The Dow gained 1.7% to 10150.65 on Friday and the Standard & Poor’s 500 Index rose 1.7% to 1064.59.

The Jackson Hole retreat saw central bankers and economists at odds on the best strategy to contain asset bubbles. Bank of England Deputy Governor Charles Bean advocated using a set of regulatory rules to take the heat out of a boom, though Bloomberg cited Stanford University Professor John Taylor as saying the ‘tools’ are “unproven”.

Bean says monetary policy “is too weak and ill directed” to rein in global growth.

Stocks also gained in Europe on Friday. Germany’s DAX 30 rose 0.7%, France’s CAC 40 rose 0.9% and the UK’s FTSE 100 rose 0.9%.

Yields on Treasury bonds have been falling and may be set for a further decline. The yield on 10-year Treasury bond yields have shrink to the lowest in 19 months last week, reaching 2.4158%.

The yield on the notes revived to 2.64% after Bernanke spoke at Jackson Hole.

The greenback strengthened to 85.36 yen after the central bank chairman’s speech though the Japanese currency is expected to resume its appreciation, adding to a 9% gain so far this year that has undermined the value of export revenue for the world’s number three economy behind the US and China.

It dollar reached a 15-year low 83.58 yen last week, nearing the record low reached in 1995 of 79.75.

Finance Minister Yoshihiko Noda said over the weekend that the Japanese government will take “decisive” action to rein in the yen. The comments stoked speculation Japan stands ready to intervene in currency markets as the Bank of Japan meets today."Foreign exchange problems are starting to have a significant impact" on Japan's economy," Noda told reporters after an economic summit with China.

Closer to home, Australia has a busy data week, with second-quarter gross domestic product expected to accelerate to a 1% pace, up from a 0.5% pace in the previous three months. Also out for Australia are current account figures for the latest quarter, due tomorrow.

New Zealand releases its trade balance for July today, building consent for July come out tomorrow.

Businesswire.co.nz

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