St George Economics economy and finance update

Global:

Following the Cypriot parliament's rejection of the bailout plan with its bank deposit levy, there are reports that the EU, ECB, IMF and Cypriot authorities have so far failed to agree to a plan-B although the latest reports suggest that Cypriot officials have drawn up an alternative plan to raise the required funds.

Meanwhile Cypriot banks will remain closed till next week and capital controls are being devised.

Russian involvement in a rescue remains a possibility.
 

Share Markets: 

Global markets retuned to a positive tone overnight despite the uncertainties surrounding the bailout of Cyprus.

US markets were encouraged by the continuation of the Federal Reserve's asset purchase programme and the forecasts put out by the Fed that they do not expect official interest rates to rise until 2015.

The Dow was up 0.4%, the French CAC40 rose 1.4%, the Dax was up 0.7% but the FTSE100 fell 0.1%.
 

Bonds:

As equity prices moved up so bond prices edged down (yields rose).

US government ten year bonds now yield 1.96%, up six basis points.

German long bond yields rose four basis points to 1.39%.

The Australian equivalent bond now yields 3.51%, a decline of four basis points on a day earlier.
 

Foreign Exchange:

The AUD was little changed against the USD overnight.

The USD lifted against the yen but weakened a little against the euro.

The release of the UK budget created some volatility in sterling trade.
 

Commodities: 

Oil and copper prices picked up overnight as concerns over the crisis in Cyprus eased.

Gold prices edged lower on the less risk-averse tone of the market.
 

Australia:

The WBC leading index rose 0.3% in January, after rising 0.3% in December.

This took the annualised growth rate up slightly to 3.4% in January, suggesting that economic growth in six to nine months time will be above trend.

DEWR internet skilled vacancies fell 1.5% in February, following a 1.7% decline in January, with vacancies falling across all eight job classifications in February.

Vacancies are down 25.4% in the year to February.
 

Europe:

Eurozone consumer confidence was little changed at -23.5 in March from -23.6 in February according to the advance report.

German producer price inflation dipped to 1.2% in the year to February, its second lowest pace (after 0.9% last July) since the first half of 2010.
 

New Zealand:

The current account narrowed to a deficit of NZ$3.26bn in Q4, from a deficit of NZ$4.39bn in Q3, although the deficit was larger than expected in Q4.

As a percent of GDP, the current account deficit widened to a three-and-a-half year high of 5.0 per cent in the December quarter, from 4.7 per cent of GDP in the September quarter.
 

United Kingdom:

UK employment grew 131k in the three months to January, up from 41k in three months to October but slower than in the prior two quarters (236k/183k).

The unemployment rate was steady at 7.8% but down from over 8% earlier in 2012.

In its 2013 budget, the UK government has revised down its forecast for 2013 GDP growth from 1.2% to 0.6%.  

Their 2014 forecast was cut back from 2.0% to 1.8%.

The recession in the Eurozone continues to constrain the UK economy.

The tax and spending measures announced overnight were intended to be fiscally neutral overall.

These included: corporate tax rate to fall to 20% in 2015; increased bank levy rate to 0.142%; clampdown on tax avoidance; higher income tax allowance of £10,000 from 2014; increased infrastructure spending and an updated inflation mandate for the Bank of England (the 2% target remains but more flexibility is given in attaining the target).

UK public debt is forecast to peak at 85% of GDP and start falling in 2017/18, two years later than expected in the Chancellor's first budget in 2010.
 

United States:

The US FMOC left official interest rates unchanged at its meeting and reiterated its support for ongoing asset purchases.

The members of the FOMC released their forecasts for official interest rates in which they do not expect them to rise until 2015.

 

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