St George Economics economy and finance update
SENTIMENT was mixed on Friday night, with strong US economic data countering the effects of automatic US budget cuts (known as sequestration), after President Obama and congressional leaders failed to reach an alternative agreement.
US spending cuts were automatically triggered on Friday, but politicians have until 27 March to agree on a plan to avoid a partial government shutdown.
The US stockmarket recovered from earlier losses on soft data out of Europe and China, to finish the session slightly stronger on the US economic data.
The Dow and the Nasdaq rose 0.3% and the S&P 500 gained 0.2%.
US bond prices rose at the long end (yields fell) on expectations of automatic US budget spending cuts and amid concerns about economic growth in Europe and China, given softer data there.
The US dollar strengthened against the Aussie dollar and the other major currencies, boosted by upbeat US economic data in contrast with less favourable data elsewhere.
The Yen weakened versus the Aussie and US dollars, on expectations the Bank of Japan (BoJ) will move to ease monetary policy further, with rumours of a special BoJ meeting partly responsible.
The Euro depreciated on weak European economic data and growing speculation the ECB may act to support economic activity.
Commodity prices fell with China's softer manufacturing data and the prospect of US budget cuts raising concerns about the demand for commodities.
The AiG performance of manufacturing increased from 40.2 to 45.6 in February, to its highest in eight months. It continues to point to a contraction in manufacturing (with a reading below 50).
RP Data-Rismark dwelling prices rose 0.3% in February, taking annual growth to 1.3% in the year. Increases in the month were led by Darwin (2.3%), Canberra (1.9%), Melbourne (1.5%) then Sydney (0.1%).
Decline in dwelling prices were witnessed in Brisbane (-1.1%), Hobart (-0.9%), Adelaide (-0.8%) and Perth (-0.8%).
The Chinese manufacturing PMI slipped from 50.4 to 50.1 in February, suggesting that the pickup in growth may be stabilising. A reading around 50 however, continues to point to a solid pace of growth in China.
The HSBC manufacturing PMI told a similar story, declining from 52.3 to 50.4 in February.
The European unemployment rate rose to a record high of 11.9% in February.
In Europe, the unemployment rate ranges from 4.9% in Austria, to 26.2% in Spain (where the youth unemployment rate is 55.5%). The flash CPI for February was 1.8% year-on-year, its lowest since 2010.
In more upbeat news, German retail sales jumped 3.1% in January, the largest increase in six years, to be up 2.4% for the year to January.
The jobless rate stepped down from a revised 4.3% to 4.2% in January, while the availability of jobs improved.
Japan remains stuck in deflation and a long way from its two percent inflation target. CPI fell 0.3% in the year to January.
Core prices (excluding fresh food) also declined, falling 0.2% over the same period.
Capital spending contracted 8.7% in the year to the December quarter, although it increased 0.9% in the quarter.
The quarterly outcome could result in an upward revision to the December quarter GDP outcome, which was previously reported as a 0.1% contraction.
The factory PMI fell from 50.5 in January to 47.9 in February, the lowest in four months, and below the 50 reading indicating contraction in UK manufacturing activity.
UK credit data was subdued, with mortgage outstandings up just £0.1bn in January and consumer credit growing by just £0.4bn.
US economic data was mostly stronger. The ISM manufacturing PMI for February rose unexpectedly to 54.2 from 53.1 in January. It is now at its highest since mid-2011, with an improvement in production and new orders (but not jobs) in February.
University of Michigan consumer confidence was stronger than expected, rising to 77.6 in February, from 76.3 in January. It still remains below the levels seen in October and November last year.
Not all the data was positive, though, with personal income down by a larger than expected 3.6% in January, after rising 2.6% in December.
Personal spending, however, rose 0.2% in January, after rising 0.1% in December, indicating consumers continued spending despite the impact of higher payroll taxes on take home pay.
In other data, US construction spending fell 2.1% in January, due to a decline in non-residential activity, while residential build spending was flat in January, but up 21.1% for the year to January.