Stockland Shopping Centre in Gladstone.
Stockland Shopping Centre in Gladstone. Chrissy Harris

Today's RBA decision is likely to keep rates on hold

Australia:

At 2.30pm today the RBA announces its first cash rate decision for the year. We expect no change in the cash rate which currently stands at 2.50%.

Residential building approvals fell 2.9% in December, the third consecutive monthly fall.

However, while growth may have hit a soft patch in recent months, the level of building approvals remains high. Rising house prices as confirmed by RP Data-Rismark validate the view that the housing market remains buoyant.

Dwelling prices across Australia rose 1.2% in January and 9.8% in the year to January.

In other data yesterday, ANZ Job Ads fell 0.3% in January, marking the fourth consecutive month this survey has posted a minor negative result.

However, the decline in  job ads is stabilising. This suggests that the labour market will improve although it will likely remain soft in the coming months.

The Australian Industry Group's Performance of Manufacturing index fell 0.9 points to 46.7 in January, pointing to a further contraction in manufacturing activity.  

The TD Securities - Melbourne Institute inflation gauge saw a subdued rise of 0.1% in January after jumping 0.7% in December. Clothing prices and travel costs declined, but there were rises in the prices of education, urban transport fares and utilities.

Share Markets: 

US markets fell on the weaker than expected US manufacturing data (see below).

The combination of reduced monetary stimulus and a perception of weaker economic growth unsettled many investors. Europe was not immune to the jitters.

The FTSE 100 fell 0.7% while the Dax fell 1.3%. Among US markets, the Dow fell 2.1%, the S&P500 was down 2.2% and the Nasdaq fell 2.6%.

Bonds: 

Funds flowed from equities to bonds. In the US and Europe, treasuries rose pushing yields lower.

US ten year government yields fell seven basis points to 2.58%, well down on the 3.0% seen at the end of 2013.

Tapering may have begun but the economy and emerging market uncertainties are keeping bond yields down - for now.

Australian ten year government yields at 4.0% are now well above those of Spain at 3.7%. Spanish bond yields traded above 7.0% in 2012.

Foreign Exchange:

The AUD rose above US 88 cents briefly overnight but then moved lower as risk aversion took hold following some weak US data (see below) and uncertainty regarding emerging markets. 

The AUD moved lower against the yen and the euro but made up ground against the British pound overnight.

Commodities:

Oil and copper prices fell on the weaker than expected US manufacturing data while the price of gold rose as its allure as a perceived safe haven came to the fore.

Australia:

At 2.30pm today the RBA announces its first cash rate decision for the year. We expect no change in the cash rate which currently stands at 2.50%.

Residential building approvals fell 2.9% in December, the third consecutive monthly fall.

However, while growth may have hit a soft patch in recent months, the level of building approvals remains high. Rising house prices as confirmed by RP Data-Rismark validate the view that the housing market remains buoyant.

Dwelling prices across Australia rose 1.2% in January and 9.8% in the year to January.

In other data yesterday, ANZ Job Ads fell 0.3% in January, marking the fourth consecutive month this survey has posted a minor negative result.

However, the decline in  job ads is stabilising. This suggests that the labour market will improve although it will likely remain soft in the coming months.

The Australian Industry Group's Performance of Manufacturing index fell 0.9 points to 46.7 in January, pointing to a further contraction in manufacturing activity.  

The TD Securities - Melbourne Institute inflation gauge saw a subdued rise of 0.1% in January after jumping 0.7% in December. Clothing prices and travel costs declined, but there were rises in the prices of education, urban transport fares and utilities.  

China:

China's non-manufacturing PMI fell to 53.4 in January; a result which is consistent with statistics from China that suggest their economy is losing some momentum.

Although recent information points to slowing Chinese economic activity, the non-manufacturing data remains above levels that are considered contractionary. 

Europe: 

The Eurozone manufacturing PMI index was revised up from 53.9 to 54.0 in the January final reading, its highest since May 2011.

Both the French and German PMIs were revised higher (though France remained contractionary at 49.3); the Italian PMI at 53.1 was at its highest since Q2 2011 (as was Germany at 56.5); Spain rose from 50.8 to 52.2 in January.

United Kingdom:

UK manufacturing PMI index fell from 57.2 to 56.7 in January, exactly in line with its average over the previous six months, and still close to two year highs, suggesting that flat official industrial production data at the end of 2013 will pick up in 2014.

Meanwhile house prices accelerated to 4.8% over the year to January, the fastest annual pace of gain on the Hometrack index since 2007.

United States:

The US ISM manufacturing index fell from 56.5 to 51.3 in January, ending the 6 month long string of readings through the second half of 2013 that saw it average 56.2, its best such run since the later parts of 2010.

The large decline may be a correction given that official data shows manufacturing growing at an annual pace of around 2.6% for the year to December, a result that seemed out of step with the strong ISM reading.

A reading of 51.3 for January implies modest growth in the months ahead.

US construction spending rose 0.1% in December after a cumulative gain of almost 3% over the previous three months (September to November).

Ongoing solid gains in residential spending, up 2.4% in December, were offset by a 1.3% fall in the non-residential component.


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