St George Economics economy and finance update
Markets remained upbeat last night, supported by further good news about the US labour market.
In Europe, the positive mood was helped by draft statement issued at an EU summit that leaders would grant France, Spain and Portugal extra time to bring down their deficits, thereby lessening pressure for austerity.
The Euro Stoxx gained 1.5%, while the Dow and S&P500 rose 0.6% and the Nasdaq gained 0.4%.
Yesterday, Australian shares bucked the global trend and fell despite strong jobs data, as markets pared back expectations of another RBA rate cut.
US treasuries weakened (yields rose) as stronger risk appetite and positive labour market data dampened demand for safe-haven bonds.
The US dollar against a basket of currencies weakened, but remains close to a seven-month high, as the run of data continues to point to an improving US economy.
The Australian dollar rallied after data showed the strongest monthly job gain in over a decade, touching above 1.04 last night.
Markets have significantly pared back expectations of another rate cut by the RBA, and are now "pricing in" a 56% chance of another 25 basis point cut by the end of 2013 (according to interest rate futures).
Previously, another 25 basis point rate cut was fully "priced in."
Commodity prices rose, supported by encouraging jobs data from the US. Gold prices rose to a two-week high, likely reflecting a pullback in the US dollar.
During February, 71.5k jobs were created across Australia.
Despite this, the unemployment rate remained steady 5.4%. Preventing a decline in the unemployment rate was as rise in the number of people seeking work. The participation rate rose from 65.0% in January to 65.3% in February.
The strength of the jobs report reduces the probability of an RBA rate cut in the very short term.
Initial jobless claims fell to 332k from a revised 342k in the week ending 9 March.
The four-week average has now fallen to the lowest since March 2008 and further signalling and improvement in the US labour market.
The current account posted a deficit of US$110.4bn in the December quarter, a slight narrowing from the revised deficit of US$112.4bn in the previous quarter.
Producer prices rose 0.7% in February, in line with consensus expectations. It took the annual rate to 1.7% in the year to February.
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