St George Economics economy and finance update
The US stockmarket regained its footing overnight, although it failed to fully retrace the losses of the previous session.
Fed Chairman Bernanke's testimony to the Senate Banking Committee allayed some concerns that the Fed could move to unwind its monetary stimulus program, providing support to equities.
However, ongoing concerns about a political stalemate in Italy limited the gains.
The Dow rose 0.9%, the S&P 500 gained 0.6% and the Nasdaq was up 0.4%.
The political uncertainty in Italy weighed heavily on European stocks, with the Eurostoxx 50 closing down 3.1%.
US bonds edged lower (yields rose) on stockmarket gains.
10-year Treasury yields, however, remained close to one-month lows after Bernanke's testimony indicated quantitative easing would be maintained for now and concerns about a political stalemate in Italy drove safe haven flows into US government bonds.
European peripheral bond yields rose sharply on the uncertainty surrounding Italy's election outcome.
Italian 10-year bond yields rose 41 basis points to 4.90% and Spanish 10-year yields were up 20 basis points to 5.37%.
The Aussie weakened against the US dollar from yesterday morning after concerns about Europe drove safe haven flows into the US dollar and upbeat US economic data was supportive.
The Aussie regained some ground against the Yen, which had jumped sharply in the previous session on European concerns.
The Aussie drifted lower against the Euro, giving back some of its previous gains from the previous session.
Commodities: Copper prices were boosted by Bernanke's testimony and upbeat US housing and consumer confidence data.
Gold prices also benefited from Bernanke's testimony, which suggested ongoing monetary easing, boosting gold's value as an inflation-hedge.
RBA Assistant Governor Guy Debelle spoke on the mechanism through which the RBA influences interest rates in the domestic economy and the high value of the exchange rate.
Despite the concerns surrounding the level of the currency, Debelle has said that the Australian dollar would need to be higher to justify any intervention.
Debelle continued to leave the door open for more easing indicating that there was scope to lower interest rates further to offset the pressures of the higher Australian dollar.
Concerns about the Eurozone debt crisis have emerged once again, following a period of relative calm.
The results of the Italian election gave no party a clear parliamentary majority, creating uncertainty, and saw increased support for anti-austerity parties, raising the risk that Italy will weaken its austerity efforts.
Bernanke's testimony to the Senate Banking Committee indicated quantitative easing would be maintained for now.
Bernanke said economic growth was "moderate", inflation "low" and the job market was "gradually improving", but "generally weak."
Bernanke spoke about the benefits and costs of using alternative monetary policy tools.
Despite being dovish, Bernanke did allude to the costs of maintaining quantitative easing as well as reminding the market the 1 March government spending cuts are expected to dent GDP growth by 0.6% per year.
The S&P Case Shiller 20 city index rose 0.9% in December, its eleventh straight gain after falling for most of the period from mid 2006 until Jan last year.
Annual house price inflation of 6.8% year-on-year is the highest since 2006.
The FHFA house price index also posted its eleventh straight gain in December, of 0.6%, for a 5.6% year-on-year sales pace.
Meanwhile, sales of new homes surged 15.6% in January after almost flat sales in Q4 last year, although sales of new homes remain well below their peak.
US consumer confidence jumped from 58.4 to 69.6 in February, although confidence is still below levels seen in October last year.
The present index rose 7.1 points lifted in part by improved assessment of the labour market, while expectations jumped 13.9 points.
In other data, the US Richmond Fed factory index rose from -12 to 6 in February, recovering all of January's 17 point slump.
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