St George Economics economy and finance update

Share Markets:

The US Dow Jones index reached a record high overnight as optimism rose regarding the underlying health of the economy.

This was reinforced by comments made by Fed Chairman Ben Bernanke who noted that the expansionary monetary policies of the world's major economies were 'mutually constructive'. 

He gave no hints that US quantitative easing would be pulled back in the near term.

At the same time, China's low inflation (see below) will help it avoid tightening its monetary policies.

The Dow rose 0.4% to 14,613 while the FTSE was up 0.6%.

The Dax fell 0.3% as German exports declined in February (see below).
 

Bonds:

There was little movement in bond yields overnight. US 10 year government bonds yield 1.75% while those in Germany stand at 1.26%, having stood at 1.71% in late January.

Australian long bond yields have also come down, from 3.68% in mid-March to 3.24% at present.

Events surrounding Cyprus account for some of the increased demand for 'safe haven' assets.
 

Foreign Exchange:

The AUD edged higher overnight on the back of global enthusiasm for commodities.

The USD lost some ground against the euro and the yen despite Japan's latest boost to quantitative easing and economic weakness in Europe.
 

Commodities:

Commodity prices were lifted by the prospect of ongoing Chinese economic growth following China's subdued inflation outcome (see below).

A weaker USD also lifted demand from holders of euro. Oil moved higher as did both gold and copper.
 

Australia:

The NAB Business survey showed a deterioration in business conditions from -3 in February  to -7 in March, its lowest reading in four years.

There was, however, a marginal pick-up in business confidence from 1 to 2.

Negative numbers indicate deterioration and positive numbers, improvement.
 

China:

The annual pace of inflation in China fell from 3.2% in February down to 2.1% in March.

Low inflation should assist the Chinese authorities in keeping interest rates steady as they aim for economic growth in the region of 7.5%.
 

Europe:

German exports fell 1.5% in February, reversing their 1.3% rise in January, to be down 0.3% over the year.

This was their first decline in annual terms since the recession of 2009.
 

United Kingdom:

UK industrial production bounced 1.0% in February after falling 1.3% in January. Snow disruption was a factor at play in the monthly volatility.

The annual pace of contraction of -2.2% confirms that the UK industrial sector remains in a recessionary state.

UK exports fell 2.1% in February leading to a widening of the UK trade deficit from £2.36 billion to £3.64 billion.
 

United States:

The US NFIB small business optimism slipped from 90.8 to 89.5 in March but may be suffering from seasonal adjustment issues.

 

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