St George Economics economy and finance update

Share Markets:

Share markets continued to be well-supported given hopes of further monetary policy easing.

Expectations are mounting that the European Central Bank will cut rates next week with ongoing weakness in the European economy.

Meanwhile the Bank of Japan is expected to maintain its aggressive easing stance when it meets today.

Positive US jobs data may have also helped lift sentiment, although there are growing signs that economic activity is losing some momentum.

The Dow rose 0.2%, while the S&P500 rose 0.4% and the Nasdaq lifted 0.6%.
 

Bonds:

US treasuries were relatively unchanged despite improved sentiment in equity markets, and reflect mixed economic data last night. 

A US 7-year note auction worth US$29bn was well-received, attracting the highest demand this year, reflecting still strong demand for US treasuries.
 

Foreign Exchange:

The US dollar against a basket of currencies was relatively unchanged. Meanwhile, the euro rose, but then weakened on reports that the ECB could ease policy.

GBP rose as the UK economy grew by more than forecast.

The Australian dollar rose on improved risk appetite, more than recovering its losses from subdued inflation data on Wednesday.
 

Commodities: 

Commodity prices rose, with the CRB index rising 1.5%. Oil prices rose on geopolitical concerns in Syria, while gold prices continued to recover from its massive drop earlier in the month.
 

Australia: 

CPI inflation was well contained in the March quarter, rising just 0.4%.

This kept the annual rate steady at 2.5% in the year to the March quarter. Underlying (core) inflation also rose 0.4% in the March quarter, to be up 2.4% in the year to the March quarter.

The annual pace of underlying inflation remains close to the middle of the RBA's 2 to 3 per cent target band.

This should give comfort to the RBA that it has the scope to ease interest rates again if necessary.
 

Europe: 

Spain's unemployment rate rose to 27.2% in Q1, the highest in at least 37 years, as the struggles in the banking sector and fiscal austerity continue to weigh on the economy. 
 

United Kingdom:

The UK economy grew by 0.3% in the March quarter, stronger than generally expected (consensus 0.3%) with annual growth at 0.6% in the year to the March quarter. It reverses the Q4 post-Olympics contraction.

The limited breakdown showed services growing 0.6% but manufacturing down 0.3% and construction falling 2.5%.
 

United States: 

US initial jobless claims fell 16k to 339k in the week ending 20 April, and have continued to trend downwards since late last year.

The Kansas City Fed factory index was steady at -5 in April, the seventh straight month below 0 signalling contraction.

It adds to other regional surveys that are suggesting some weakness in factory activity in April.

 

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