St George Economics economy and finance update

Share Markets:

Stockmarkets were boosted on hopes the Fed will continue with its quantitative easing program, although investors remain nervous ahead of Fed Chairman Bernanke's testimony to Congress tonight, where he may signal a move to unwind the Fed's quantitative easing.

The Dow rose 0.3% and the S&P 500 was up 0.2%, with both ending at record highs, while the Nasdaq gained 0.2%.
 

Bonds:

US government bond yields rose (yields fell), with several Fed speakers adopting a more dovish tone, reducing expectations the Fed is close to tapering its quantitative easing program.

St Louis Fed President Bullard (a hawk) said the US recovery has been disappointing and that he cannot see a good case for tapering unless inflation rises.

Investors were disappointed that he did not talk about when the Fed may begin unwinding quantitative easing.

New York Fed President Dudley (a dove) said "how well the economy fights its way through the significant fiscal drag currently in force" will be an important aspect of deciding when to reduce quantitative easing.

Despite these comments, speculation about a tapering in quantitative easing remains on the table, with Chicago Fed President Evans, who is usually a dove, saying he was "open-minded" about slowing the Fed's bond-buying and mentioned the idea of halting it, saying the Fed could bring it to a "quick conclusion" once there is enough improvement in the US economy.

Greek 10-year bond yields fell below 30-year bond yields for the first time in three years, so that the yield curve has a more 'normal' shape, indicating that investors' concerns about the region are easing.

 

Foreign Exchange: 

The Aussie dollar softened against the US dollar, with a decline in commodity prices negative for the local currency, although the move was limited ahead of Bernanke's testimony tonight.

The Aussie dollar edged higher against the Yen, ahead of the conclusion of a two-day Bank of Japan policy meeting, which is expected to show Japan's ongoing commitment to aggressive monetary policy easing.
 

Commodities:

Copper fell on concerns about demand from top consumer China given disappointing import numbers.
 

Australia:

The RBA minutes of the May meeting clarified the RBA's reasons for cutting rates.

Lower than expected inflation, ongoing subdued credit growth and soft business conditions were largely behind the decision.

Much like the RBA's accompanying Statement and the Statement on Monetary Policy released earlier this month, there was little guidance on the path of future rates.

The use of only "some of the scope" to ease monetary policy leaves the door open for further rate cuts.

However, given the RBA sees that the outlook had "not materially changed", it doesn't appear to be poised to cut rates again.

The Conference board leading index rose 0.1% in March following a 0.3% rise in the previous month.

The index has improved in early 2013, and point to a pickup in economic activity in coming months.
 

United Kingdom:

Consumer prices were slower than expected rising 0.2% in April.

The annual rate of consumer price inflation eased to a seven-month low of 2.4% in the year to April, from 2.8% in the year to March.

UK producer output prices fell 0.1% in April, taking the annual rate down to 1.1% in the year to April, from 1.9% in the year to March.
 

United States:

There was no significant data released in the US overnight.

 

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