Kieran Salsone

St George Economics economy and finance update

Share Markets:

Equity markets were lacklustre on Friday night with no major news to propel markets in either direction.  The Dow and the Dax both rose 0.1%, the S&P500 was flat but the FTSE 100 was up 0.3%.

Bonds:

An above-consensus inflation report from China on Friday (see below) dampened expectations of future stimulus.

US 10 year treasury yields fell from 1.89% to 1.87% during the US session, helped by a narrowing US budget deficit in December. Domestically, 10 year bond yields edged higher to 3.47%.

Foreign Exchange: 

The AUD was weaker on Friday night but remains in the US$1.05 range.

The possibility of less stimulus in China appeared to weigh on the AUD.

The US dollar index was little changed, the USD slipped a touch against the euro but rose to new 18 month highs against the yen as Japan launched a new stimulus package (see below).

Commodities:

Oil prices were weaker on short term over-supply concerns while gold was down on the expectation that China would be restrained in terms of new stimulus packages because of its latest inflation figures.

Gold traders seemed to shrug off the Japanese stimulus package.

Australia:

No significant data released on Friday.  Housing finance figures due today.

China:

Chinese inflation stepped up a notch towards the end of 2012.

Their CPI rose 2.5% in the year to December, the highest in seven months following a 2.0% annual rise in November. A cold winter has boosted food prices, particularly vegetables.

In other price data, producer prices declined 1.9% in the year to December, but were up from -2.2% in year to November. 

Japan:

The current account posted a deficit of ¥222.4bn in November, the first deficit in ten months. The deterioration will support the case for further monetary stimulus.

However, Japan's trade position could improve in coming months as the yen has weakened significantly, and as the global economy appears to be picking up.

Newly elected Prime Minister Shinzo Abe has said that the Bank of Japan (BoJ) should consider maximum employment as a monetary goal, taking a page from Federal Reserve policy.

Abe has increased the pressure on the BoJ to raise its inflation target to 2%. Both of these possible changes to the BoJ's mandate would increase the likelihood of more aggressive monetary easing.

Prime Minister Abe's government has now approved $117 billion of spending to revive the economy in the biggest stimulus since the financial crisis.

United Kingdom:

UK industrial production rose 0.3% in November mainly due to a bounce in oil and gas but the factory output component fell 0.3%, its fourth month without a rise. 

A decline in UK Q4 GDP is now generally expected.

United States:

The US trade deficit widened by $6.6bn in November as imports rebounded 3.8%, outpacing a 1.0% exports gain.

Both had fallen in October due in part to late-month disruptions from super-storm Sandy.

The November imports bill was boosted by an 11% surge in consumer goods such as cell phones (iphone 5), and autos. Lower oil prices prevented a wider deficit.

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