St George Economics economy and finance update

Share Markets:

Financial markets were hopeful that the aggressive pace of quantitative easing from the Federal Reserve would continue following weaker-than-expected US economic data last night. 

Meanwhile, a boost in European confidence was also encouraging for European shares, which rose 0.5%. In the US, the Dow gained 0.1%, the S&P500 rose 0.4% and the Nasdaq lifted 0.7%.

Bonds:

US treasuries were little changed, although yields were volatile.

US 10-year yields rose close to 2.16 before retreating later in the session. Investors are likely waiting for a clearer direction on US monetary policy.

Foreign Exchange:

The US dollar fell against the majors, and to a three-week low against the euro. Softer-than-expected economic data weighed on the US dollar, while the euro may have been boosted by a lift in confidence.

The Australian dollar was volatile, but generally higher on US dollar weakness.

Commodities:

The broad commodity price index (CRB) weakened slightly, brought down by lower prices for grains.

However, the paring back of expectations for quantitative easing tapering were supportive for other major commodities. Gold prices rose to its highest in two weeks.

Australia:

Private capital expenditure fell 4.7% in the March quarter, much weaker than consensus expectations for a 0.5% rise.

The annual rate of growth (-4.4%) slipped into negative territory for the first time since the June quarter 2010.  The estimate for investment spending in 2013-14 was upgraded from its estimate given in the December quarter, implying a 13.2% increase in spending.

This continues to suggest that the level of mining investment will remain high and that investment in other industries will gradually improve.

However, there remains a high degree of variability in these estimates.

Building approvals surged 9.1% in April, more than recovering a 5.5% drop in March.

The gain took annual growth up to 27.3% in the year to April, the strongest annual growth since May 2010, and restored an upward trend.

The data confirms that a recovery in dwelling investment is underway, assisted by low interest rates.

Europe:

Confidence in the euro zone is improving, although it remains at low levels.

Economic confidence rose from 88.6 to 89.4 in May, while the business climate indicator improved from -1.04 to -0.76. Consumer confidence however, was unrevised at -21.9 in the final estimate for May.

New Zealand:

Building permits surged 18.5% in April, more than offsetting a revised 8.3% decline in March and well exceeding consensus expectations for a 7.7% increase.

The jump in April reflected the volatile apartment approvals.

However, consents were 39.4% higher than a year ago, providing an indication of the upswing in NZ housing currently underway.

United States:

Initial jobless claims rose from a revised 344k to 354k for the week ending 25 May.

The rise was unexpected by markets, and took the four-week moving average higher, but remains within the range which points to moderate growth in employment.

GDP for the March quarter was revised downwards slightly from an annualised rate of 2.5% to 2.4%.

The detail revealed stronger domestic demand (from 1.5% to 1.8%). While contributions from personal consumption and net exports were revised higher, there was a larger drag from government spending.

Pending home sales rose 0.3% in April, which took the level of sales to the highest in three years, although the gain was less than consensus forecasts for a 1.5% rise.


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