St George Economics economy and finance update

Share Markets:

Equity markets displayed a mostly positive tone overnight ahead of the US profit reporting season.

There was little to cheer the markets in the European statistics (see below) yet the FTSE100 rose 0.4% and the Dax edged up 0.1%.

The Dow rose 0.3% but there are concerns that the recession in Europe has held back the earnings of US companies. The quarterly reporting season will reveal the extent of any such damage over the next few weeks.

Bonds:

Ten year bonds moved a touch higher in a lacklustre session. US Fed Chairman Ben Bernanke is due to speak after US markets close but is only expected to argue the case for the current range of Fed policies.

Portugal's 10yr bond yields rose 6 basis points reflecting the country's request for a bailout extension.

Foreign Exchange: 

The AUD regained ground against the USD and was also stronger against yen, euro and the pound.

Yen weakness has been a feature of the market since it announced its enhanced bond buying program.

Commodities:

Like equities, commodity prices were a touch firmer but without real direction from economic data. Oil and copper both rose but gold moved lower as funds were shifted to 'so-called' riskier assets.

Australia:

The AiG performance of construction index fell to 39.0 in March, from 45.6 in February. It was the 34th consecutive month that the construction index was below 50, signalling contraction in construction activity.

New orders, which are a leading indicator, declined. The employment component also slumped. Input prices declined, but remain elevated, while selling prices fell.

ANZ job ads fell 1.5% in March, after rising 3.0% in February. For the year to March, job ads are down 17.0%.

Europe: 

German industrial production rose 0.5% in February but January was revised from flat to a fall of -0.6% resulting in an annual pace of contraction of -1.8% for the year to February.

Portugal is to further cut public spending. A court ruling that the planned one month suspension of public sector pay and pensions would be illegal means more spending cuts but taxes won't be increased, according to PM Pedro Coelho.

It does mean that €2bn in bailout funds will not be disbursed as planned and the ECB/EU/IMF troika are scheduling a visit to Lisbon to review the situation, fuelling talk of a second Portuguese bailout.

Meanwhile Slovenia is increasingly viewed as the next candidate for a bailout as the new government struggles to deal with rising funding costs and a banking system saddled with 20% impaired loans.

The Eurozone Sentix investor confidence fell from -10.6 to -17.3 in April as optimism fades under the weight of Italian politics, the Cypriot bailout and concerns over Slovenia.

Japan: 

The current account moved to a surplus of ¥637.4bn in February, from a deficit of ¥364.8bn in January. This was the first surplus in four months, but still down 47% from a year earlier.

United States: 

No data released. The earnings season began today with Alcoa lifting quarterly earnings and beating equity analysts' expectations.

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