Kieran Salsone

St George Economics economy and finance update

Share Markets:

Global stocks rose after upbeat Chinese data was released yesterday. The data was enough to more than offset any disappointment from the European Central Bank (ECB) meeting, where ECB President Draghi seemed less willing to ease monetary policy further.

In China, stronger-than-expected export growth was a positive sign for the outlook for global growth (see below for more details). The S&P500 rose to a five-year high.

Bonds:

US treasuries fell (yields rose) on improved sentiment and on optimism about the outlook for global growth.

The first Spanish bond auction for 2013 was successful, selling above its target range and at lower borrowing costs. In secondary markets, 10-year Spanish bond yields declined 25 basis points to 4.90%. 

Foreign Exchange: 

The US dollar weakened against most currencies as risk appetite lifted.

There was plenty of news to support the euro, which gained after the ECB kept interest rates on hold, a more positive assessment from Draghi and a successful Spanish bond auction. 

AUD has steadily climbed after the more positive Chinese data from around 1.05 before the release to nearly 1.06 this morning.

Commodities:

Commodity prices rose as Chinese data suggested that global demand was improving.

Oil prices were also supported on news that Saudi Arabia was cutting production in response to softening demand. 

Gold prices rose over one percent after the ECB refrained from lowering interest rates.

Australia:

Building approvals rose a modest 2.9% in November following a 5.1% decline in October.

The driver of growth has been unit development. Approvals of private 'other dwellings' rose 10.1% in the month to be up 36.3% for the year.

Looking through the month-to-month volatility, the upward trend in approvals is more apparent in Western Australia and NSW while South Australia is picking up off a low base. 

In Victoria and Queensland the trend has turned down. We expect the positive trend in building approvals to continue, assisted by lower than average interest rates, rising rents and a growing population. The data does not change our view that the RBA will remain on hold until the second quarter of 2013.

China:

The trade surplus in China widened to US$31.6bn in November from US$19.6bn in the previous month, larger than consensus estimates of US$20.0bn.

Both export and import growth exceeded market expectations.

Exports rose 14.1% in the year to December after 2.9% growth in November, suggesting that the pace of global demand is improving.

A positive sign for the outlook for Australia was the 6.0% rise in imports in the year to December, after flat growth in November, further indicating that the pace of Chinese demand is picking up.

Europe:

The European Central Bank (ECB) left rates on hold at 0.75%. ECB chief Draghi maintained the view from December that "later in 2013 economic activity should gradually recover", though "he risks surrounding the economic outlook for the euro area remain on the downside."

But he sounded less willing to admit to policy easing being imminent. While in December there was discussion of a rate cut, at this meeting, Draghi implied that no one on the Council was pushing for lower rates, saying that the decision to leave rates unchanged was unanimous.

New Zealand:

The trade deficit widened from a revised NZ$666mn to NZ$700mn in November, taking the annual trade deficit to the largest in more than three years.

Exports fell 2.1%, while imports rose 1.7% in the year. Weakening dairy prices have dampened export values, while reconstruction efforts in Christchurch are supporting demand for imported building materials.

Additionally, the high New Zealand dollar has continued to place upward pressure on the deficit. 

United Kingdom:

The Bank of England (BoE) left monetary policy unchanged. Rates were kept steady at 0.50% and its asset purchase target was unchanged at £375bn.

United States: 

US initial jobless claims rose 4k to 371k in the week ending 5 January, the fourth consecutive weekly rise from the recent low of 344k in early December.

US wholesale inventories rose 0.6% in November. Durables were up 0.4%, non-durables inventories rose 0.8%. Most of the rise was due to volumes this month, not prices.

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