Australian industrial trends still on the rise
The initial reaction from the Federal Reserve meeting on Wednesday mostly reversed overnight.
Financial markets are continuing to digest the news that the Fed would take a more gradual path of raising interest rates than investors had previously expected.
Share markets weakened in the US after jumping sharply in the previous day.
The Dow closed 0.7% lower, and the S&P500 fell 0.5%. Shares in Europe mostly gained, led by stocks in the UK and France, while the German DAX was down.
Yields on US treasuries lifted, partially recovering from the drop in the wake of the Federal Reserve meeting. Yields on 10-year treasury notes rose 5 basis points to 1.97%.
Australian bond futures also point to some retracement in yields, but remaining close to historic lows. Implied yields on 3 and 10-year bonds rose 3 basis points to 1.77% and 2.38%, respectively.
The US dollar index regained most of its losses. It remains below its recent highs hit earlier in the month, but the approaching monetary tightening by the Fed would continue to provide it support.
Conversely, the AUD pared yesterday's gains and fell to around mid-76 US cents.
Most other major currencies were lower on the US dollar recovery. GBP was also weighed down by comments by the BoE Chief Economist, which dampened expectations of a rate hike next year.
The rebound in the US dollar weighed on the prices of some commodities.
Oil prices were also dampened by comments from Kuwait which said that OPEC had to keep production steady to keep market share.
Gold prices stabilised after jumping in the previous session.
The RBA quarterly bulletin was released yesterday.
It contained a number of insightful articles. These included articles on the Australian tourism industry and the Chinese property market.
The RBA noted that conditions facing the Australian tourism industry are improving, although there is a risk that business travel in resource-exposed areas may continue to decline as resource investment unwinds further.
The exchange rate depreciation is expected to support growth in Australia's leisure tourism market by increasing the relative cost of holidaying overseas for Australians and by making Australia a more attractive travel destination for overseas visitors.
China has been an important driver of growth in Australia's leisure tourism exports over the past decade and will continue to be the dominant influence on Australia's tourism export industry.
Turning to the Chinese housing construction market, the outlook is relevant for Australia given that sector's use of raw materials such as iron ore and coking coal that Australia exports to China.
The latest slowdown in the property market has coincided with a pronounced increase in property developer leverage and remains a key risk to Chinese economic growth, financial stability and imports of resource commodities.
While the process of urbanisation in China is continuing and will provide a level of support for construction activity in coming years, the RBA expects the property market to remain weak for a time.
Various levels of government in China have taken actions to support activity and confidence in the market. If needed, the RBA sees scope for the authorities to respond with further support, but the goals of deleveraging and achieving sustainable growth may limit the extent to which policymakers are willing to provide further stimulus to the sector.
In data released yesterday, the composite index from the ACCI-Westpac industrial trends survey rose by 2 points to 56.2 in the March quarter.
This result is the sixth consecutive reading in the expansionary zone, suggesting the trend improvement in conditions that emerged in late 2013 has resumed.
The strengthening of the composite index is centred on a lift in new orders and in output, as well as overtime, but not employment.
The All Industry Activity index rose by 1.9% in January, after a contraction of 0.1% in December.
Real GDP (using the production measure) rose by 0.8% in the December quarter, in line with consensus expectations.
For calendar year 2014, real GDP grew by 3.0%.
The data shows that the economy ended 2014 on a strong note.
But the details hint at some slowdown in growth ahead.
There was a 0.5% fall in the quarter in real gross national disposable income, which was the first decline since the middle of 2012.
This fall was a consequence of the worsening in the terms of trade triggered by last year's plunge in dairy prices.
It takes time for the indirect impact on real GDP from a decline in the terms of trade to be felt, and that will come through this year in the form of slower investment and consumption growth.
In Q4, fixed investment rose by just 0.2% and consumption was up by a moderate 0.6%.
The Philadelphia Fed business survey index was 5.0 in March, versus expectations of 7.0 and 5.2 previously.
The index is much lower than the double-digit readings throughout most of last year. Like other activity indicators, it is suggesting some loss of momentum in the first quarter of the year.
The Conference Board leading index rose 0.2% in February, in line with expectations, and followed a similar rise in January.
Other data however, continued to indicate a healthy labour market. Jobless claims for the week ending 14 March edged 1k higher to 291k. Claims remained low, and continue to sit below 300k.