St George Economics economy and finance update
The rally in share markets took a breather with investors awaiting tonight's key job report in the US.
A rise in initial jobless claims casted some doubt on the health of the labour market. The Dow and S&P500 fell 0.3%, while the Nasdaq was flat.
Earlier, European shares weakened on disappointing German retail sales.
US treasuries were little changed as last night's data flow gave no clear direction. 10-year yields, however, remain close to their highest in nine months at nearly two per cent.
The US dollar weakened against most currencies, while the euro rose to its highest since November 2011. The euro's recent rally reflects an unwinding of fears of an adverse financial shock from the euro zone.
The Australian dollar was marginally higher overnight after a temporary dip yesterday.
Most commodity prices weakened on concerns about the US job market. Oil and copper prices fell. Meanwhile, subdued US inflation weighed on gold prices.
The St.George-Melbourne Institute Household Financial Conditions Report found an overall decline in financial conditions, with a 4.8% decline in the index on a year ago.
This suggests a decline in the ability for households to save, driven by the 18-24 year olds and 65 years and over age groups.
Private sector credit growth in December was the best in three months but hardly set the world on fire. Growth of 0.4% in December led to annual growth in credit of 3.6%, which remains soft.
Leading credit growth in December was business credit, which rose by 0.7%, however, this simply offset a 0.7% decline in November. Other areas of credit growth remain subdued, although there has been some minor improvement in credit growth for investor housing.
Trade price indices indicated a further decline in the terms of trade in Q4. Export prices fell 2.4%, reflecting weaker commodity prices.
Meanwhile, import prices rose 0.3%. Given the global backdrop is improving and signs that Chinese growth is picking up; commodity prices should lift throughout 2013.
This suggests that the terms of trade will begin to recover in coming quarters, and once again support income growth.
HIA new home sales rose 6.2% in December, the third consecutive monthly rise, and may point to the beginning of a recovery in dwelling construction.
Although there is reason to remain cautious about the outlook for housing amid still high household debt burdens and an uncertain employment outlook, low interest rates and a raft of State government incentives appear to be providing residential construction support. Sales in WA (12.2%), NSW (7.1%), Victoria (6.0%) and Queensland (3.9%) all rose in December, while sales in SA declined (-2.0%).
German retail sales fell 1.7% in December, pulling the annual pace of contraction down to -4.7%, the weakest early 2009 when the economy was in recession. French consumer spending was flat in December for an annual pace of -0.1%.
However, employment data was more encouraging. German unemployment fell 16k in January, following a revised 2k drop in December, the first fall since Q1 last year. The jobless rate eased from 6.9% to 6.8% in January, its first fall since Dec 2011. Meanwhile, German inflation dipped from an annual pace of 2.1% yr to 1.7% in January, the lowest in six months.
Industrial production rose 2.5% in December, following a 1.4% decline in November.
Despite the rise in December, industrial production on an annualised basis remains in decline, falling 7.8% in the year to December.
Housing starts rose 10.0% in the year to December, following a 10.3% rise in the year to November.
UK consumer confidence rose 3 points to -26 in January according to GfK.
Personal income surged 2.6% the fastest in eight years, as firms paid dividends and bonuses earlier than usual to beat 2013 increases.
This suggests that the strong income gain may unwind in coming months.
Personal spending rose 0.2% in December, with higher taxes providing a headwind for spending in coming months.
Meanwhile, the core PCE deflator was flat in December, suggesting inflation remains subdued.
US employment costs rose 0.5% in Q4 reflecting wages growth of 0.3% and benefits growth of 0.6%.
US initial jobless claims jumped 38k to 368k in the week ended 26 January, reversing much of 45k fall over the prior two weeks. This suggests that recent improvement may reflect seasonal adjustment difficulties rather than any underlying shift in job market conditions.
US Chicago PMI rose from 50.0 to 55.6 in January, the highest since April last year but down from 59.2 in January 2012, a year ago.
Another manufacturing indicator, the Milwaukee PMI edged down from 52.2 to 51.3 in January.
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