St George Economics economy and finance update

Share Markets:

Equity markets were soft on Friday night with all major European markets down and the US S&P 500 down 0.2%.

The Dow posted a 0.1% gain. Market sentiment was undermined by the outlook for the Spanish economy and by the modest economic growth numbers in the US (see below).

Bonds:

With equities in retreat, bond prices rose (yields fell). In Australia, 10 year government bond yields have fallen to 3.16% and 3 year bonds to 2.62%.

In the US, long bonds fell 4 basis points to 1.66%. Despite its economic woes, Spanish long bonds yield 4.28% well down on the 7.6% seen in mid-2012.

Foreign Exchange: 

The AUD weakened marginally over the weekend as commodity prices moved lower on the back of US GDP numbers that failed to meet expectations and continued weakness in the European economy.

Commodities: 

Commodity prices were weaker as US economic growth disappointed investors and as the Spanish economy continues to contract.

Australia: 

There were no domestic data releases on Friday and nothing of note is due today.

Over the weekend the Victorian government announced changes to its first home buyers grant that bring it into line with the majority of States.

From 1 July, grants for the construction of new homes will be lifted from $7k to $10k while for buyers of established properties, stamp duty will be cut by 40%. The first home owners grant will be scrapped for those purchasing established homes.

China:

The MNI business sentiment survey saw current business conditions improve slightly from 58.2 to 58.5 in April.

Japan:

Japan remains in deflation, with national CPI declining 0.9% in the year to March. Core CPI measures, excluding fresh food and excluding food and energy were also in decline in the year, falling 0.5% and 0.8% respectively.

Europe: 

The Spanish economy appears set to shrink more than initially expected in 2013 and its budget deficit is likely to be higher than promised.

The European Union has signalled that it will allow Spain more time to bring its budget into surplus with a firm decision from the EU expected by 29 May.

New Zealand: 

The trade surplus widened from a revised NZ$441mn to NZ$718mn in March. Exports were up a strong 13.3% in the month, while imports rose 6.9%.

For the March quarter, China became New Zealand's largest export market for the first time, overtaking Australia.

United States: 

US Q1 GDP grew 2.5% annualised, a result below the 3.0% consensus expectation.

Consumer spending accelerated to 3.2%, its fastest in two years, and housing growth moderated to a still healthy 12.6%, but business investment growth slowed from 13.2% to 2.1% and a further steep fall in defence spending saw government spending shave 0.8 percentage points off the GDP result.

Modest US economic growth suggests monetary policy will remain accommodative for the remainder of the year.

US consumer confidence dipped in April (76.4) after a strong result in March (78.6) but remains firmer than the January result of 73.8. 

The index saw a recent low of 55.7 in mid 2011 and a recent high of 82.7 in November 2012.
 

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The information contained in this report (the Information) is provided for, and is only to be used by, persons in Australia. The information may not comply with the laws of another jurisdiction. The Information is general in nature and does not take into account the particular investment objectives or financial situation of any potential reader. It does not constitute, and should not be relied on as, financial or investment advice or recommendations (expressed or implied) and is not an invitation to take up securities or other financial products or services. No decision should be made on the basis of the Information without first seeking expert financial advice. For persons with whom St.George has a contract to supply Information, the supply of the Information is made under that contract and St.George's agreed terms of supply apply. St.George does not represent or guarantee that the Information is accurate or free from errors or omissions and St.George disclaims any duty of care in relation to the Information and liability for any reliance on investment decisions made using the Information. The Information is subject to change. Terms, conditions and any fees apply to St. George products and details are available. St.George or its officers, agents or employees (including persons involved in preparation of the Information) may have financial interests in the markets discussed in the Information. St.George owns copyright in the Information unless otherwise indicated. The Information should not be reproduced, distributed, linked or transmitted without the written consent of St.George.



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