St George Economics economy and finance update

Share Markets:

European stocks gained ground on upbeat earnings results, shrugging off disappointing German investor sentiment data, with the Stoxx Europe 600 index rising to its highest since June 2008.

Sentiment was also assisted by Fitch's two-notch rating upgrade for Greece, from CCC to B-.

The US stockmarket strengthened overnight as investor optimism regarding the outlook for US economic growth improved.

Gaining attention was hedge fund manager David Tepper's pronouncement that the US "is on the verge of an explosion of greatness" and that bank stocks were attractive.

The Dow and the S&P 500 hit record highs and the Nasdaq ended at a twelve-and-a-half year high.

The Dow rose 0.8%, the S&P 500 gained 1.0% and the Nasdaq was up 0.7% for the session. 


US government bonds weakened further (yields rose) with stockmarket gains diminishing the safe haven appeal of government bonds.

Speculation the Fed may consider tapering its quantitative easing program also weighed on bonds.

Fed hawk Plosser (this year a non-voting member of the FOMC) argued the Fed should reduce asset purchases in June, saying that if the FOMC were to refrain from reducing the pace of its purchases in light of the improving labour market, this would undermine its credibility.

Foreign Exchange: 

The Aussie dollar lost ground against the major currencies following the release of the Budget last night, which showed a wider deficit and a forecast of slower growth.

The Aussie fell to a low of 98.72 US cents overnight.

The Euro weakened versus the US dollar on softer than expected German investor confidence data, but was stronger versus the Aussie dollar.


Commodity prices weakened, led by a decline in the copper price on concerns about a slowdown in demand from China.


The 2013-14 Commonwealth Budget was released overnight.

A deficit of $18 billion is expected for next financial year.

We will send out a summary of the major points later this morning.


Euro zone industrial production rose 1.0% in March. For the year to March, industrial production is down 1.7%.

In March, gains in industrial production in Germany and Spain offset contractions in France and Italy.

German ZEW analysts' expectations were little changed at 36.4 in May, from 36.3 in April.

The current index fell for the second consecutive month, while expectations improved in May.

New Zealand:

Inflation adjusted retail sales rose 0.5% in the March quarter 2013.

This followed a strong 1.9% rise in the December quarter and was below the consensus forecast.

In real terms, retail spending was up a strong 3.5% over the year to March.

United Kingdom:

UK house price optimism picked up, with the RICS (chartered surveyors) reporting a net balance of 1% recording higher house prices in their April survey, the first positive outcome since mid-2010.

United States: 

The US NFIB small business optimism index rose to 92.1 in April, from 89.5 in March.

This was its highest since October last year.

A rise in the balance of firms planning to take on new employees was promising.

Import prices fell 0.5% in April, mostly due to lower petroleum prices.

Excluding petroleum, import prices fell 0.1% for the second month running, a sign that US dollar appreciation is having a disinflationary impact.


Please read the disclaimer below:

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.