St George Economics economy and finance update

Share Markets:

The US stockmarket had a strong session last night, with upbeat earnings from Coca-Cola and Johnson & Johnson boosting sentiment.

Soft US inflation data reinforced expectations the Fed can continue with monetary stimulus and so was positive for stocks.

The Dow rose 1.1%, the S&P 500 gained 1.4% and the Nasdaq was up 1.5% for the session.


Bond prices edged lower (yields rose) as stockmarket gains eroded some of the safe haven appeal of US government bonds.

The move was limited by comments from Fed officials, which were supportive of bonds.

New York Fed President Dudley said he expects US economic growth to remain "sluggish" this year, with only a modest decline in unemployment.

Foreign Exchange:

The Aussie dollar gained ground against the US dollar as risk appetites improved and commodity prices strengthened.

The Yen lost ground versus the Aussie dollar, reversing safe haven flows from the previous session.

The Euro benefited from improved risk appetites and appreciated against the Aussie dollar and other major currencies.


Commodity prices gains, with copper supported by upbeat US housing data.

The gold price reversed, edging higher to partially unwind some of its recent losses, after BlackRock Inc. said the recent selling of gold did not reflect fundamentals.

The gold price was up 1.6% for the session, but has still lost more than 13% over the past week.


RBA Assistant Governor (Financial Markets) spoke yesterday about financing the resources boom.

He noted that little debt was associated with the construction boom, with the bulk of the funds coming from retained earnings.

Given that foreign ownership was involved, the net result was a large inflow of capital that has buoyed the AUD.

At the same time, offshore purchases of Australian government bonds have lifted the AUD above levels that one might normally expect. 

If the pace of project construction falls away, the AUD, by implication, could move lower unless other factors come into play.

The minutes of the RBA's April board meeting were released yesterday.

They displayed a mostly positive tone noting that reductions in interest rates were having their desired impact upon interest rate sensitive areas of the economy.

The minutes suggested that the full impact of these cuts has yet to be felt and that currently, the level of demand warrants accommodative monetary policy.

It did this without hinting at the possibility of further cuts.

Sales of new motor vehicles fell 0.6% in March to be up 4.5% over the year.

Sales remain at historically high levels following strong sales throughout most of 2011 and 2012.


Euro zone CPI was in line with expectations, rising 1.2% in March.

The annual rate edged down to 1.7% in the year to March, from 1.8% in the year to February, below the ECB's 2% inflation ceiling for the second consecutive month.

The Euro zone ZEW survey of analysts' sentiment fell to 24.9 in April, from 33.4 in March.

The German ZEW index also declined, falling to 36.3 in April, from a three-year high of 48.5 in March, with concerns about the Euro zone debt crisis weighing on sentiment.

United Kingdom:

UK consumer prices rose 0.3% in March.

This saw the annual rate of CPI hold at 2.8%, well above the Bank of England's 2% inflation target.

Core inflation, which excludes alcohol, tobacco, food and energy prices, rose 2.4% in the year to March, from 2.3% in the year to February.

Producer prices edged slightly higher in March, with the slow pace of growth pushing annual producer prices lower. Input prices slipped 0.1% in March, after rising in February.

Annual producer input prices growth slowed to 0.4% in the year to March, from 2.1% in the year to February.

Producer output prices rose 0.3%, taking the annual rate down to 2.0% in the year to March, from 2.3% in the year to February.

United States:

CPI inflation fell in March for the first time in four months due to lower gasoline prices.

The CPI fell 0.2% in March. Annual CPI inflation rose 1.5% in the year to March, down from 2.0% in the year to February and the smallest annual increase since July.

Core CPI inflation (which excludes food and energy prices) rose 0.1% in March.

For the year to March CPI rose 1.9%, down from 2.0% in the year to February.

Housing starts were stronger than expected, rising 7.0% in March, following an upwardly revised 7.3% increase in February (previously reported as 0.8%).

The number of housing starts rose to its highest level in almost five years, supported by a jump in multifamily building (eg apartments).

Building permits were weaker than expected, falling 3.9% in March, to wipe out February's upwardly revised 3.9% gain.

Industrial production rose 0.4% in March, following an upwardly revised 1.1% increase in February (previously reported as 0.7%).


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