Asian markets witnessed a hectic week full of important data from the region’s economy, where Europe’s debt crisis continued to weigh on the outlook and the market, the week of heavy data was very critical, but the star remains China with the surprise rate cut.
The week started with China’s non-manufacturing industries that grew at a slower pace in May for a second month. The non-manufacturing PMI index fell to 55.2 from 56.1 in April as demand on exports dropped and the real estate continued to weaken.
The data adds to evidence that the Chinese economy is slowing, mainly as the spreading debt crisis in Europe is damaging global trade. The non-manufacturing industries account for 40% of the economy.
Moving to Japan, Massaki Shirakawa, BoJ’s Governor, is monitoring investors’ concerns over the steady yen appreciation. Worries increased in the last few months pushing the yen towards the highest since World War II against the dollar, which is pressuring him again into considering weakening the currency.
The yen advanced 13.4% since March, the most among the currencies of the 10 most developed nations, although it depreciated 0.4% during the first quarter to reach its lowest in 10 months on March 21.
On June 06, Australia’s Current account deficit widened during the three months ended in March, as metal ores and mineral prices fell and demand on exports dropped. The Australian economy released its current account balance for the first quarter of the year, where the actual reading showed a deficit of AUD 14892 million compared with a previous deficit of AUD 837 million, while analysts expected a deficit of AUD 14850 million.
Australia’s current account deficit widened during the three months ended in March, as metal ores and mineral prices fell and demand on exports dropped.
Most importantly was the RBA decision to cut rates by 25 bps to 3.50% as they added to the 50 bps cut delivered in May. The bank is acting preemptively to support growth from slowing Chinese growth and rising debt problems in Europe, and with inflation subdued the bank has room to act.
The support followed also with better than expected GDP data from the first quarter. The Australian economy expanded during the first quarter of the year by more than double the expected pace, driven by the surge in businesses and households spending as well as non-dwelling construction.
The gross domestic product for the first quarter grew by 1.3% compared with a previous reading of 0.4%, while analysts expected an expansion of 0.6%. The economy grew on the yearly basis by 4.3% in first quarter compared with a previous of 2.3%, while analysts’ expectations were on an expansion of 3.3%.
Household spending rose 1.6% in the first quarter, adding 0.9% point to the GDP, while non-dwelling construction soared 12.6%, adding 1 point to growth.
As for South Korea, the economy expanded during the first quarter of the year by 0.9%, where the corporate investment and government spending rose despite Europe’s debt crisis.
Moving to China, The People’s Bank of China met expectations and speculation and acted in favor of slowing growth. China cut the interest rate for the first time since 2008 amid the global slowdown and deepening debt crisis in Europe, which weighs on growth in the world’s second largest economy.
The People’s Bank of China lowered the one-year deposit rate by 25 basis points to 3.25% effective Friday; the bank also lowered the one-year lending rate to 6.31% from 6.56% by also 25 bps.
The central bank also allowed banks to offer 20% discount to the benchmark lending rate widening percentage from the previously offered 10% discount; the move extends the flexibility for banks to expand money supply for businesses and consumers to help support lending growth and stimulate the economy.
Finally, the Japanese economy the gross domestic for the first quarter of the year, where the final reading was revised higher to 1.2% compared with a previous reading of 1.0%, while analysts expected 1.1%.
On the year the economy expanded 4.7 in the first quarter of the year, revised from the previous reading of 4.1%.
Governor Masaki Shirakawa and his board gather few days before the Greek elections that may determine whether the nation leaves the euro, as euro crisis already sparked a surge in demand for bonds that left the BOJ unable to meet targets for purchases twice in May.
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