St George Economics economy and finance update
The keenly awaited testimony from Fed Chairman Bernanke failed to shed much light onto the future path of stimulus, but in the end confirmed the possibility of winding down asset purchases.
Initially, Bernanke warned against premature tightening, which drove a spike in equity markets.
However, he later said that if there was sustainable progress in the labour market and in confidence that the Fed could "take a step down in our pace of purchases."
Share markets fell on Bernanke's comments and also the FOMC minutes. The Dow fell 0.5%, the S&P500 dropped 0.8% and the Nasdaq fell 1.1%.
US treasuries fell (yields rose) after Bernanke said that they could lower the pace of bond purchases.
The comments saw 10-year yields rise above 2 percent for the first time in two months.
The US dollar against most currencies dipped and then rose moving in line with Bernanke's comments.
The US dollar index rose to a three-year high.
The AUD conversely spiked to above 0.98 but then fell to around 0.97.
Commodity prices slipped after Bernanke's testimony, on the prospect of stimulus being withdrawn.
Oil prices were also weighed down by a jump in US gasoline stockpiles.
Copper bucked the trend and rose to a six-week high on supply issues following a tunnel collapse in the world's second largest copper mine in Indonesia.
Westpac consumer confidence was disappointing, falling 7.0% for May, taking consumer confidence to its lowest since August 2012.
This followed a decline of 5.1% in April. The consumer confidence index dropped to 97.6 in May, with the reading below 100 indicating that more consumers are pessimistic than optimistic.
The fall was a little surprising given it followed the RBA interest rate cut from the RBA on 7 May.
There is the possibility that the Federal Budget announcement may have dampened any optimism following the interest rate cut.
DEWR Skilled internet vacancies fell 1.3% in April and March's vacancies were revised down to a 1.5% decline (previously reported as a 0.1% increase). For the year to April, internet vacancies are down 23.9%.
The Bureau of Resources & Energy Economics (BREE) released its half yearly listing of major projects in the resources and energy sectors, which showed a decline in both the number and value of projects to the Committed Stage in the six months to April.
The total number of projects at the Committed Stage decreased to 73 in April, from 87 in October, although cost increases meant there was little change in the value of the projects.
For the first time BREE gave a forward projection which under the 'likely scenario' suggested committed investment has peaked.
The merchandise trade balance widened to a deficit of ¥879.9bn, from a deficit of ¥364.0bn in March.
This was the widest April deficit since 1979, with weaker global demand for Japanese exports, despite the fall in the Yen.
Retail sales fell sharply, and were down 1.3% in April, following a 0.6% drop in March.
The Bank of England (BoE) voted 6 -3 to keep asset purchases unchanged, following the run of improving economic data up to the meeting earlier in the month.
Forecasts were revised upwards over the next three years.
The FOMC minutes revealed that "a number" of officials were open to tapering large-scale asset purchases as early as June. However there remained disagreement on the pre-conditions for tapering.
There remained some caution among participants that they needed to see "continued progress, more confidence in the outlook, or diminished downside risks before slowing the pace of purchases would become appropriate".
Recent data, post the FOMC meeting, has been less than positive and point to economic activity softening into Q2. While the labour market has shown some improvement, there remains a considerable risk that the large Federal budget cuts will hamper the current economic recovery.
Existing home sales fell 0.6% in April, following a revised 0.2% decline in March.
The level of sales is now the highest in more than three years providing another encouraging sign for the US housing market.
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