St George Economics economy and finance update
Global sentiment continued to be supported by encouraging data from the US. The positive news on the US job market outweighed any disappointment from the ECB, which provided no signs to cutting interest rates further.
The Dow hit another new record while the S&P500 rose to a new five-year high.
Treasuries fell for the fourth consecutive day (yields rose) on hopes that the US job market is gaining strength.
The US dollar fell against most currencies, as risk appetite strengthened.
The euro rose after the ECB provided little hint of an interest rate cut and President Draghi said that euro zone growth will stabilize this year. Meanwhile, the Japanese yen weakened on expectations the BoJ will take on a more aggressive easing at its next meeting.
The Australian dollar benefited from the improved risk environment with AUD recovering to around 1.27.
Commodity prices were supported by a weaker US dollar, and positive US economic data.
However, gold prices fell as the prospect of monetary stimulus from the ECB faded and US initial jobless claims fuelled hopes for a positive result in tonight's non-farm payroll report.
The trade deficit widened to $1.1bn in January, deteriorating from the revised deficit of $688mn in December.
Exports declined 0.7% in January reflecting weather disruptions to coking coal in Queensland and iron ore in WA.
Anecdotal reports are suggesting that some shipments are still being affected as the cyclone season continues.
That said, disruptions are less significant than in 2011. Imports rose 0.7%, partially recovering from a 4.3% slump in December. The weather disruptions in early 2013 should be viewed as a short-term setback and we expect that Australia's trade balance should see some improvement later this year.
The AiG performance of construction index rose 9.4 points to 45.6 in February, the highest reading since 2010.
Although it remains below 50, which signals contraction, the rapid improvement is in line with the pickup in dwelling investment. It provides a further positive sign that lower interest rates are providing the construction industry support.
The Bank of Japan (BoJ) left monetary policy unchanged as widely expected. However, BoJ board member Shirai had proposed bringing forward open-ended government debt purchases.
Although the proposal was voted down, it raises the prospect of aggressive monetary easing sooner rather than later.
The BoJ is expected to take a more aggressive stance on monetary easing at its next meeting scheduled on 3-4 April, after the BoJ Governor Shirakawa steps down on 19 March.
The European Central Bank (ECB) left rates on hold at 0.75%. The ECB chief Draghi acknowledged that a rate cut was discussed by the Council but the "prevailing consensus" was for no change.
The ECB's latest staff projection for GDP this year was -0.5%, and is expecting 1.0% GDP growth in 2014. Both years were downgrades from previous forecasts. Draghi cited the partial repayment of LTROs (long-term refinancing operations) after one year, reducing the ECB's balance sheet as evidence that downside risks, while still present, are diminishing.
German factory goods orders fell 1.9% in January, which took the annual rate to a 2.5% decline in the year.
Consumer, capital and intermediate goods all recorded lower orders.
The Bank of England (BoE) left rates on hold at 0.50% and its asset purchase program unchanged at £375bn.
The US trade balance widened by more than $6bn to $44.4bn in January as exports reversed 1.2% and imports bounced 1.8%. Oil drove but most of the rise in imports.
The real ex oil deficit was little changed but the total deficit rose almost $4bn in real terms.
US initial jobless claims fell 7k to 340k at the start of March. That is a six-week low with no obvious special factors at play, providing a further encouraging sign ahead of the non-farm payrolls report tonight.