Markets cautious as oil prices fall again

Share Markets:

Financial markets took a more cautious tone, as oil prices fell.

Other news included a cut to the reserve requirement ratio by China's central bank, which failed to lift the mood.

US share markets tracked sideways. The Dow was flat, while the S&P500 fell 0.4%.

Interest Rates: 

Yields on US treasuries initially rose on the back of generally encouraging data in Europe and the US and the stimulus from China, but then fell later on as sentiment weakened.

US 10-year treasury yields fell 3 basis points lower at 1.77%.

Yields on Australian bond futures similarly rose and then weakened.

Yields on 10-year bond futures fell 7 basis points to 2.36%, and on 3-year bonds dropped 4 basis points to 1.86%.

Foreign Exchange:

The US dollar index strengthened, rebounding from the sharp decline in previous days. It may have been helped by stalled negotiations regarding Greece's debt which weighed on the euro.

NZD weakened on the lift in its unemployment rate yesterday, and another signal that the RBNZ was leaving rates on hold.

The Australian dollar touched an intraday high of 0.7851, but then softer risk appetite saw it weaken slightly.


Oil prices fell for the first time in four days, as supply concerns resurfaced.

US crude stocks rose for the fourth consecutive week to a record high.

Gold prices strengthened as risk appetite weakened and on China's monetary stimulus. 


The AiG performance of services index edged higher from 47.5 to 49.9 in January.

It remains just shy of the 50 mark dividing contraction and expansion, but the improvement is encouraging.

A lower Australian dollar and activity within the housing sector is supporting a range of services. 

Confidence among businesses remains lacklustre according to the NAB quarterly business survey.

Business confidence fell to a reading of 2 in the December quarter, down from 6 in the September quarter.

Current conditions were unchanged at 4 in the quarter, and a little above the long-run average, although there continued to be uneven performance across industries. 

Yesterday, the ABS confirmed that data on first home buyers had been under-reported by some lenders since 2012.

A new method of estimating first home buyers now suggests that first home buyer demand was not as weak as previously.

As a proportion of total, first home buyer loans stood at 14.6% in November and not at 11.6% as previously reported. 

While the data suggest that the number of first home buyers has been broadly stable in recent years, the revised proportion was still at its lowest since 2004 and suggests that demand by upgraders and investors are still outpacing first home buyers.


China's central bank cut the reserve requirement ratio by 50 basis points to be applied across the board.

This requires banks to hold less cash, and is a way of providing monetary stimulus by Chinese authorities. 

The HSBC services PMI fell from 53.4 to 51.8 in January, the lowest in six months.

It follows weakness in the manufacturing indices earlier in the week, and underscores concerns about the outlook for China. It will heighten calls for further stimulus from Chinese authorities.


Eurozone retail sales rose 0.3% in December, above consensus estimates for a flat result. It followed a revised 0.7% gain in January.

The annual growth rate picked up to 2.8%, only a modest pace of growth but the strongest since 2007.

Euro zone's composite PMI was revised up to 52.6 in January, further above the 51.4 reading in December. Conditions in both manufacturing and services improved for the month.  

New Zealand:

Employment grew by 1.2% in the December quarter, taking annual growth to a solid 3.5%. 

Despite the strong growth in employment, the unemployment rate rose from 5.4% in the September quarter to 5.7% in the December quarter.

This was thanks to the participation rate edging up from 69.0% to 69.7% in the December quarter. In other employment data, private sector wages grew at a quarterly pace of 0.5%.

In other news, RBNZ Governor Wheeler predicted strong growth and low inflation in a speech, and stated that "in our current situation there are important considerations why a period of OCR stability is the most prudent option".

United Kingdom:

The services sector improved in January, according to the Markit/CIPS PMI. The index lifted from 55.8 to 57.2 in January.

The corresponding composite PMI also lifted from 55.3 to 56.7.

United States:

US private sector payrolls (ADP) increased by 213k in December, less than the 223k consensus but December's result was revised upwards by 12k. 

This survey continues to suggest healthy growth in employment.

Markets will await the official non-farm payroll jobs data on Friday.

The ISM non-manufacturing index rose to 56.7 in January (vs 56.4 consensus) from 56.5 in December.

Lower energy prices are boosting household demand for goods and services, and are likely to be a net positive for the US economy.

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