Economic growth slow but strong despite global weakness

Share Markets:

Some lacklustre earnings reports and profit taking took US share markets sharply lower overnight.

The Dow fell 1.1%, the S&P500 fell 1.0% and the Nasdaq was down 1.6%. European markets were a little firmer as Greece appeared to give ground in its discussions with its creditors.

The German Dax index rose 0.2%, the FTSE was also up 0.2% but the Euro Stoxx index was flat.

Interest Rates: 

Despite the weakness in US equity markets, US government bond yields were little moved.

Ten year US government bond yields fell just one basis point to 2.03% while the 2 year rate rose one basis point to 0.57%. In Australia 10 year yields edged up five basis points to 2.65% and 3 year rates remained unchanged at 1.93%.

Foreign Exchange:

The US dollar index initially fell at the London open but then regained ground.

The Euro was stronger but the AUD moved back into the US 79 cent range. Since mid-April, the US dollar index has fallen 4.7% and added to upward pressure on the AUD.


The price of oil continues to push higher despite reports of strong OPEC production.

Gold was weaker, slipping below US$1200 per ounce while copper rose on some good data on employment out of the US.

The price of iron ore slipped below US$60 per tonne but is well up on its low of US$48 in mid-April.


Private sector credit grew by 0.5% in March, which saw the annual rate remain steady at 6.2%. This is still equal to the strongest in pace of growth in six years. 

Low interest rates are slowly but surely increasing appetite for debt. Despite the pickup, the pace of credit growth remains below its long-run average.

The terms of trade declined marginally over the March quarter, as implied by the trade price indices (based on merchandised goods).

Export prices declined 0.5% in the March quarter, largely reflecting lower commodity prices. Import prices also slipped, dropping 0.2% in the quarter, as the sharp fall in fuel costs outweighed the impact of the fall in the Australian dollar.


No data of market significance released.


Eurozone CPI rose from an annual pace of -0.1% in March to 0.0% in April, according to the flash estimate based on German and Spanish figures, and partial data from other member states.

The core annual rate was steady at 0.6%, its all-time low. ECB policy has been established to counter this low inflation.


The Bank of Japan (BoJ) left monetary policy unchanged, but lowered its inflation and growth forecasts. It now expects inflation will not reach the BoJ's 2.0% target until September 2016 (previously April).

Despite the delay in reaching its inflation target, BoJ Governor Kuroda said that "trend inflation is improving steadily" and that he did not think that there was a need to ease policy further.

In terms of data, industrial production fell 0.3%, dropping for the second consecutive month. It was however, above expectations for a 2.3% decline, and reflects a pullback in activity from a strong 4.1% increase in January.

Housing starts were 0.7% higher in the year to March.

New Zealand:

Building permits grew 11.0% in March, rebounding from a 6.5% decline in February. Despite the strong gain, approvals were still down over the March quarter.

United Kingdom:

No data of market significance released.

United States:

US personal spending rose 0.4% in March, consistent with the quarterly totals in yesterday's GDP report. Personal income however was flat in March, its weakest in over a year.

US employment cost index rose 0.7% in Q1, matching its fastest quarterly gains since 2008, driven by private sector wages & salaries growth which lifted from 0.5% to 0.7%.

In annual growth terms, the employment cost index (ECI) lifted from 2.2% to 2.6%, a multi-year high.

The stronger than expected ECI gain can be traced to private sector sales worker bonuses, rather than broad-based gains in employment costs; indeed some sectors such as construction saw weaker annual growth in compensation.

US initial jobless claims fell from 296k to 262k in the week ended April  25, their lowest reading in fifteen years, with no special factors or distortions at play.

Firms are hanging on to workers like never before this century, a necessary pre-condition for the sustained labour market improvement sought by the Fed.

The US Chicago Fed factory index recovered from 46.3 in March to 52.3 in April after the first pair of sub 50 readings (Feb-Mar) since the 2009 recession.