St George Economics economy and finance update
Global sentiment was mixed, although share markets gained early in the session on hopes that Italy will form a coalition government.
Additionally, ECB president Draghi confirmed that monetary policy would remain stimulatory for some time. This provided support to European shares with the Euro Stoxx rising 0.8%. In the US, earlier gains were erased by concerns that federal spending cuts will hamper growth (see below for more details).
US treasuries rose (yields fell) on concerns that the upcoming "sequester" ($85 billion worth of federal spending cuts) will dampen the recovery in the US.
The upward revision to US Q4 GDP was also less than markets had expected.
The US dollar index rose against most currencies, as looming spending cuts weighed on sentiment.
Meanwhile, the euro weakened after Draghi signalled the ECB was a long way off from tightening monetary policy and subdued inflation data.
The Australian dollar rose to just above 1.028 after yesterday's capex data was released, which lessened the prospect of an imminent RBA rate cut.
However, AUD gradually declined overnight back to around 1.022.
Commodity prices were mixed with little clear direction from sentiment. Gold prices declined as its appeal as a hedge against inflation weakened.
Private capital expenditure fell 1.3% in the December quarter, taking annual growth in capital expenditure to 10.0% in the year.
Despite the fall in actual spending, the much anticipated part of this data release has been what firms intend to spend.
We estimate a 14.0% increase in spending over 2013-14 after a 6.0% increase in 2012-13. Although we recognise that these estimates are subject to a high degree of variability, particularly for 2013-14, it provides a positive sign for the outlook for investment spending, particularly for mining and "other" industries.
It also provides some tentative evidence that non-mining investment will recover, at least for industries other than manufacturing, which is what the RBA had been hoping for.
Private sector credit grew by a subdued 0.2% in January, which saw annual growth was unchanged at 3.6%. All sub-categories, business, housing and other personal credit, continue to be weak.
On a brighter note, new home sales rose 4.2% in January, the fourth consecutive monthly rise. It suggests that low interest rates and some State government incentives may be working to support residential construction.
Euro zone core CPI fell from an annual pace of 1.5% to 1.3% in January, its lowest since mid 2011. Meanwhile, the headline CPI was unrevised from the flash estimate of 2.0% in the year to January.
German unemployment fell 3k in February for a steady 6.9% jobless rate, although January's jobless rate was revised up from 6.8% to 6.9%. With the rising unemployment in other euro countries, the euro zone jobless rate is likely to rise further towards 12%.
Industrial production rose 1.0% in January following a 2.4% rise in December, suggesting that economic activity may be picking up amid an improving global backdrop and a weaker yen.
Housing starts rose 5.0% in the year to January, the fifth consecutive month they have seen an annual increase.
Building permits declined 0.4% in January, but followed a 9.4% surge in December. The level of permits remain close to a 4 ½ year high, and provide further signs of a recovery in the housing market.
Consumer confidence was steady at -26 in February according to GfK.
Federal spending cuts worth US$85 billion are set to kick on 1 March, which is expected to detract at least 0.5 percentage points from growth.
Taken with an increase in payroll tax, cuts in spending by state and local governments, fiscal policy is likely to significantly dampen growth this year.
US Q4 GDP growth was revised from -0.1% to 0.1% annualised, from a marginal contraction to a marginal rise.
The most significant drivers of the revision were net exports, a turnaround of 0.5 percentage points, partially offset by a further 0.3 percentage points drag from inventories.
The Chicago PMI rose from 55.6 to 56.8 in February, its highest in almost a year, with production and orders both slightly above 60 but jobs easing from 58.0 to 55.7.
The Milwaukee-NAPM rose from 51.3 to 56.5, its highest since June. However the Kansas City Fed factory index slumped from -2 to -10 in February, its fifth straight sub-zero reading and its weakest in four years.
US initial jobless claims fell 22k to 344k in the week ending 23 February but that result may have been distorted by the Presidents' Day holiday.
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