St George Economics economy and finance update

Share Markets:

The US stockmarket had a softer session on Friday, with investor sentiment slipping following the release of less upbeat US consumer confidence and New York manufacturing data.

US banking stocks did not react poorly to bank stress tests. The Dow and the S&P 500 fell 0.2% and the Nasdaq was down 0.3%.

Investor sentiment will weaken further today, amid concerns about the Euro zone.

After markets closed the Euro zone announced a bailout plan for Cyprus which requires depositors to pay a tax of 6.75% for deposits less than €100,000 and 9.9% for deposits greater than €100,000.

The Cyprus parliament still has to vote on the tax proposal.


US government bond prices rose (yields fell) after a fall in US consumer sentiment data bolstered the safe haven appeal of US government debt.

Foreign Exchange:

The Aussie dollar gained against the US dollar on Friday night, only to fall sharply at the open this morning with risk appetites diminishing on news of the Cyprus bailout.

The Aussie weakened versus the other major currencies, but gained ground versus the Euro. The Euro slumped this morning with concerns a lack of domestic support for the Cyprus bailout could see it derailed and amid concerns this move could be replicated in future bailouts for other countries in the Euro zone.

The Yen strengthened sharply versus the Aussie dollar on safe haven flows this morning.


Commodities had a mixed session, with the oil price edging higher, on strong US industrial production data and the weaker US dollar, while copper prices declined after weak US consumer confidence data raised concerns about the prospects for demand.


There was no significant economic data released locally.


Euro zone core CPI was steady at 1.3% in the year to February, the equal slowest pace since mid-2011.The headline CPI was unrevised at 1.8% year-on-year, its lowest since late 2010.

EU leaders shifted focus to "structural" deficits, effectively allowing member states to run larger deficits for longer during periods of economic malaise - a significant development that effectively means a diminished insistence on austerity and could pave for the way for further fiscal transfers between Euro zone countries.

New Zealand:

The business NZ PMI rose from 55.2 to 56.3 in February, the highest reading in a year.

The sub-indices for production, employment and new orders all improved, and indicate that manufacturing in New Zealand is continuing to expand despite pressures of the strong New Zealand dollar.

The ANZ-Roy Morgan consumer confidence index fell 5.1% to 114.8 in March, but remains well above 100 indicating optimists outweigh pessimists.

United States:

US consumer sentiment fell from 77.6 in February, to 71.8 in March, its lowest reading since December 2011, according to the University of Michigan index.

The fall consumer confidence was unexpected, and raises concerns about the outlook for consumer spending.

The New York Fed factory index slipped to 9.2 in March, from 10.0 in February. Despite the slippage, orders, shipments and jobs all remained positive.

Industrial production rose 0.7% in February on broad based gains. This was the largest gain in three months, boosted by business equipment and motor vehicles.

Consumer prices rose 0.7% in February, lifted by energy. Food prices rose just 0.1%. Core consumer prices were up 0.2%, constrained by lower auto prices, airfares and apparel. The annual headline and core CPI gains were both higher in February, at 2.0% year-on-year.

US TIC data showed US$111bn of net inflows into the US in January, up from US$22bn in December, although long term flows slowed from US$64bn to US$26 bn.

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