You can download a podcast of the market round-up from here.

• US adopt mid-strength Quantitative Easing.
• Mixed local data risks a two-speed economy.
• China’s growing panda slows to reassess.

US earnings season has been interrupted by weak economic data and a dovish assessment by the Federal Reserve. Fed Reserve Chairman Ben Bernanke is often late to the crease when it comes to giving a frank assessment of the US economy and this week has been no different. Yesterday the FOMC took Bernanke’s July economic outlook from “unusually uncertain” to acknowledging that “the pace of economic recovery is likely to be more modest in the near term than had been anticipated”. The statement came as the Federal Reserve chose to maintain the size of its balance sheet by reinvesting the proceeds from assets purchased under the Troubled Asset Relief Program. The extent of asset purchases was widely speculated on and their response could easily be described as the mid-strength beer of Quantitative Easing. By maintaining the level of liquidity in the credit market, it seeks to stabilise interest rates in that asset class to allow lower rates to be passed on to borrowers. The steps taken were received well by the equity markets, in what is an effort to avoid a reticent economy similar to Japan’s lost decade in the 1990’s. This is the first piece of stimulus in more than 12months, so watch this space for further asset purchases that will reflect the performance of the US economy.

Local economic data out this week has been broadly weaker than expected and highlights concerns that the local economy could descend to a two speed economy. After a spate of interest rate hikes we have seen a generally robust economy however this week’s figures have seen a softening in optimism. In particular, the NAB Business Confidence decreased to 2 while growth in the Westpac Consumer Confidence figure slowed to 5.4%, both down by half from last month’s figures. This raises concerns that the pressure on inflation is being largely driven by the widening Trade Surplus courtesy of demand from China and that the resulting pressure on the RBA to raise rates is significantly undermining other sectors of the economy.

Other news globally included some of China’s recent data being uncharacteristically lower than market expectations, with both Retail Sales and the Producer Price Index both lower than expected. Generally speaking however, data from China was broadly supportive of continued economic growth. In the US, Friday’s Nonfarm Payrolls were down sharply by -131K against an expected -65K. China’s poor economic data have weighed heavily on the Aussie this week, which had been performing well despite volatility in equity markets.

Visit our homepage  for more information on how we can help you with your foreign exchange requirements.