Investors lose their taste for risk as Europe weakens
Risk aversion prevailed on Friday night, with concerns about emerging markets lingering and European economic data disappointing investors.
The US stockmarket lost ground, with the Dow off 0.9%, the S&P 500 down 0.7% and the Nasdaq slipping 0.5% for the session.
US government bonds rose (yields fell) as emerging market volatility and stockmarket loses boosted safe haven demand for US government debt.
German bond yields fell sharply after Euro zone inflation data and German retail sales were softer than expected, which may lead to talk of further easing from the ECB.
Australian three-year government bond yields (implied by futures) initially fell, but fully rebounded later on expectations the RBA may move from an easing bias to a neutral bias this week.
The US dollar gained ground against the major currencies on reduced risk appetites.
The Euro fell to a two-month low versus the US dollar on soft Euro zone and German economic data.
The Aussie dollar fell to 0.8694 US dollars on Friday night before rebounding to currently trade around 0.8770 US cents.
The New Zealand dollar fell to a four-month low of 0.8063 US dollars, before recovering some of its lost ground.
The Aussie dollar strengthened against the New Zealand dollar. Safe haven flows benefited the Yen, which gained ground versus the US and Aussie dollars.
Commodity prices weakened as emerging market jitters raised concerns about demand.
Copper prices have now fallen for eight consecutive sessions on concerns softer growth in China's manufacturing sector will curb demand for copper.
This is the longest consecutive run of declines in the copper price since late 1998.
Private sector credit grew 0.5% in December, its fastest pace since March 2012. Lower interest rates are slowly beginning to bite.
The annual pace of credit growth, at 3.9% in December, further suggests that the deleveraging process is over as businesses and consumers find themselves with more robust balance sheets.
Producer prices saw a subdued rise of 0.2% in the December, due to a stronger Australian Dollar during this period, for an increase in the year to December of 1.9%.
The official manufacturing PMI fell to a six-month low of 50.5 in January, down from 51 in December.
This was in line with consensus expectations, however, the PMI's move closer to 50 (below which signals contraction in manufacturing activity) has raised concerns about the growth outlook for the manufacturing sector.
It follows a reported move below 50 in the separate HSBC manufacturing PMI last week.
Euro zone inflation fell back to the recent cycle low of 0.7% for the year to January, although the core rate rose from its all-time low by a tick to 0.8% in the year to January.
Given that the consensus was for a rise to 0.9% in the year to January for the headline CPI, it will be interesting to see how ECB chief Draghi handles this point in the press statement next week.
German retail sales plunged 2.5% in December, the fifth month in seven that sales have fallen, with retail volumes running 3.3% lower in December compared to May.
Sales were down 2.4% for the year to December. These are notoriously volatile and often revised data, however, it does raise concerns about domestic demand in Germany.
The New Zealand trade balance improved in December, rising to NZ$523mn.
During this period New Zealand saw increased exports particularly of dairy products, with China being confirmed as its largest trading partner.
Japan's CPI increase of 1.6% in the year to December was the strongest in over 5 years. Japan saw its jobless rate fall further than expected, down to 0.3 percentage points to 3.7% in December.
In other data, industrial production also increased 1.1% in December. Signs point to Japan's economy continuing to strengthen as it slowly overcomes long-held deflationary concerns.
Furthermore, Japanese housing starts improved to 18% in the year to December, indicating strong demand for property ahead of the April sales tax increase.
Gfk's UK consumer confidence survey for January produced a more positive result than expected, rising to -7. Consumers are likely spurred on by a more positive economic outlook.
US personal income was flat in December, but personal spending rose 0.4%. Without further gains in income growth, solid gains in spending are likely to be difficult to sustain.
Over the past 6 months income grew 1.1% while spending rose 1.9%, with that implied savings rundown coming in the December quarter.
The core PCE deflator printed its sixth consecutive 0.1% rise, five of which rounded up to 0.1%. This is the Fed's preferred inflation measure.
The Chicago PMI dipped from 60.8 to 59.1 in January, its first reading below 60 since the September quarter, when it averaged 54.4.
The University of Michigan's consumer sentiment index was revised up from 80.4 to 81.2 in January, still a little weaker than December's 82.5 and lower than the 84-85 level reached in May-July last year.
The employment cost index rose 0.5% in Q4, driven by a surprisingly strong 0.6% rise in wages and salaries and benefits also up 0.6%.