St George Economics economy and finance update

THE AUD continued to soften overnight, opening a little weaker against all the majors.

Share Markets:

Mainland European stocks were a touch softer on weakness in the banking sector, possibly associated with calls for the ECB to adopt a negative overnight cash rate.

The FTSE 100 rose 0.1%, the Dax was flat and the French CAC40 fell 0.2%. In the US, markets were subdued despite solid gains in retail spending.

The Dow was down 0.2% and the S&P500 was flat.

Bonds:

US long bond yields moved higher as stronger than expected retail sales fuelled speculation of a tapering off of US quantitative easing later this year.

Over the course of May, US 10 year bonds have risen from 1.63% to 1.92%.

In other news, Spain is preparing to approach the market for ten year debt following a successful auction in January.

Foreign Exchange: 

THE USD gained ground against the majors on further speculation that quantitative easing (QE) would end sooner than expected and on better US economic numbers.

The AUD continued to soften overnight, opening a little weaker against all the majors.

Commodities: 

The stronger USD saw gold and oil prices decline in USD terms but copper was stronger as China continues to grow and as the US economy continues to send positive signals (see below).

Australia:

Tonight sees the release of the Federal Budget for 2013-14 at 7.30 pm. A budget update is then usually provided late in the year or early the next.

Housing finance for owner occupiers was stronger than expected, rising 5.2% in March, indicating that lower interest rates are impacting lending, following a period of State policy driven disruption in some States late last year.

For the year to March, housing finance is up 6.3%. Housing finance for the purchase of new dwellings jumped 21.1% in March, in a promising sign for housing supply.

Investor housing finance continued to show solid gains with a 2.1% increase by value in March.

By State NSW was the standout performer with housing finance rising 8.0% in March, retracing some of the declines seen late last year. Victoria and SA also showed strong gains of 5.3% in March.

NAB business confidence weakened in April, falling to -2 points, from a reading of 2 points in March.

Business conditions improved, edging up to -6 points in April, from -7 points in March (which was the lowest reading since May 2009).

The detail within the survey showed employment, exports and forward orders worsened, while trading and profitability improved.

China:

Industrial production was a little softer than expected, rising 9.3% in the year to April, although this was an improvement on the 8.9% annual rate in the year to April.

Retail sales rose 12.8% in the year to April, up from 12.6% growth in the year to March.

Fixed asset investment rose 20.6% in the first four months of the year, compared to a year earlier, down from 20.9% in the first quarter.

Taken together the data released from China yesterday suggests a modest pick-up in growth in April, compared to the first quarter. 

United States: 

US retail sales rose beat expectations of a 0.3% fall and posted a 0.1% rise in April as car sales moved higher.

Apart from gasoline sales, only food and personal care spending declined in April; the other eleven store types all posted gains except for flat furniture sales.

In March, eight store types recorded falls.

Originally published as St George Economics economy and finance update