St George Economics economy and finance update

Share Markets:

Upbeat US payrolls data boosted investor sentiment on Friday night. The Dow and the S&P 500 both gained 0.5%, with the Dow hitting a new record high and the S&P 500 reaching a new 5-year high.

The Nasdaq gained 0.4%.

Bonds:

US government bonds fell at the long end (yields rose) after the US payrolls data was stronger than expected, weighing on demand for safe haven government debt.

Foreign Exchange:

The Aussie dollar weakened versus the US dollar, with payrolls data supportive for the US dollar, while softer Chinese industrial production data over the weekend weighing on the Aussie dollar.

The Yen hit a four-and-a-half year low against the Aussie and a three-year low against the US dollar.

The Euro weakened after ratings agency Fitch cut Italy's long-term foreign currency issuer default rating to BBB+ from A-, with a negative outlook.

Commodities:

Commodity prices gained on stronger demand following the upbeat payrolls data. The oil price gained despite the stronger US dollar.

Australia:

There was no significant data released locally.

China:

The trade balance narrowed from US$29.2bn to US$15.3bn in February, reflecting a strong 21.8% increase in exports in the year. Imports however, fell 15.2% in the year to February.

The CPI rose 1.1% in February, taking the annual rate up to 3.2% in the year to February.

China's government is forecasting inflation at 3.5% in 2013. In February, a large increase in food prices was the main driver of CPI inflation.

Food prices gained 2.7% in February, to be up 6.0% over the year to February, with fruit and vegetable prices rising sharply.

The increase in food prices was driven by stronger demand given the Chinese Lunar New Year celebrations. Excluding food prices, the CPI rose 0.2% in February and 1.9% over the year.

Producer prices rose 0.2% in February, to be up 1.6% in the year to February, unchanged from the annual rate in January.

In the year to January-February, industrial production rose 9.9%, from 10.3% in the year to December.

In the year to January-February, retail sales rose 12.3%, from 15.2% in the year to December.

Aggregate financing fell to 1.07 trillion yuan in February, from a record 2.54 trillion yuan in January.

Europe:

German industrial production was flat in January. Industrial production fell each month from August to November, one of the drivers of the Q4 slump in GDP, but in December production rose 0.6% and it stabilised at that low level at the start of this year. Production was down -1.3% in the year to January.

Japan:

GDP growth in Q4 was revised to be flat, which was previous reported as a 0.1% contraction. It might suggest that Japanese growth is stabilising.

In other data, the current account posted a ¥364.8bn deficit, the third consecutive monthly deficit in January, reflecting Japan's large import bill for energy.

United States: 

US non-farm payrolls rose by 236k in February, double the (downwardly revised) 119k January gain but still a little behind the 247k increase recorded in November and well down on the 311k increase in January last year.

By industry, the gains were broad based. Construction jobs had their strongest increase in almost six years (+48k in February), reflecting an improvement in the housing market.

Factory jobs rose by 14k and retailing (+23.7k) and health care jobs showed gains. Meanwhile the government sector shed jobs.

The unemployment rate fell to a post-recession low of 7.7% in February, from 7.9% in January. This reflected an increase in jobs as well as a decrease in the workforce participation rate (fewer people were looking for work).

The workforce participation rate fell to 63.5%, matching its lowest since September 1981, suggesting some would-be workers remain discouraged about the jobs market. The Fed has said it will keep its official interest rate at their current low levels as long as the unemployment rate remains above 6.5% (and subject to inflation remaining contained).

Average hourly earnings rose 0.2% in February, after rising 0.1% in January. This saw the annual rate hold steady at 2.1% in the year to February. Average weekly hours worked also increased slightly to 34.5 in February, from 34.4 in January.

US wholesale inventories jumped 1.2% in January, most of it durable goods, and the fastest rise in over a year.

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