Business spending down in December to four-year low

Australia: 

Private business spending fell 5.2% in the December quarter.

The annual rate slipped further into decline at 5.7%, the weakest annual rate in over four years.

The estimates for future spending for 2013-14 and 2014-15 were also released, and provided some early signs that the decline in mining investment will accelerate in 2014-15.

While this does not provide encouraging news for the growth outlook, a more pronounced decline in mining investment was expected.

The declines in actual spending for non-mining (manufacturing and other) for the quarter were disappointing, and indicate that any recovery in non-mining investment is proving to be slow.

Nonetheless, expected expenditure still implies that a pickup in non-mining investment is occurring.

Share Markets: 

Share markets, particularly in the US, shrugged off the ongoing geopolitical tensions in Ukraine and the mixed run of economic data overnight.

There was possibly some reassurance from Yellen who said that the Fed would consider pulling back on their tapering schedule if recent weakness in economic data turned out not to be due to the poor weather.

Despite this remark, it appears that there is still a high hurdle for the Fed to alter the plan to end its asset purchase program by the end of the year (see below for more details).

The S&P500 and Dow both rose 0.5% and the Nasdaq gained 0.6%. 

Bonds:

US treasuries rose (yields fell) in reaction to the tensions in the Ukraine and the soft jobs data overnight. Yields on 10-year notes hit a near three-week low.

Australian yields (implied by futures) were mixed. Yields on 10-year bonds tracked their US counterparts and edged down 1 basis point to 3.99%. Meanwhile, yields on 3-year bonds edged 1 basis point higher to 2.89%.

Foreign Exchange: 

The US dollar fell against a basket of currencies, weighed down by soft economic data and on Yellen's comments.

Other traditional safe-haven currencies strengthened, including the yen and the swiss franc, supported by the global geopolitical tensions.

AUD dropped following the disappointing capex release yesterday, but then regained those losses overnight.

Commodities:

Gold and oil prices were little changed, reflecting an uncertain outlook for the US economy.  Copper prices fell further, hitting its lowest in nearly three months, on concerns of weaker Chinese demand.

Europe:

The euro zone business climate indicator rose modestly to 0.37 in February, its highest since July 2011, just before the recent recession began.

Economic confidence index also edged up to a two and a half year high at 101.2 in February.

Euro zone money supply M3 growth picked up from an annual pace of 1.0% to 1.2% in the year to January, but loans to households and business contracted at a -2.2%, little changed from -2.3% in December.

German unemployment fell 14k in February and 60k in the three months to February, the fastest decline in a trimester in almost three years.

The unemployment rate held steady at its multi-decade low of 6.8%.

In other data, the preliminary German February CPI slowed from 1.3% to 1.2% in the year, but the EU harmonised measure fell 0.2 percentage points to 1.0% in the year to February, a new cycle low and places some downside risk on the euro zone CPI for February, which will be released tomorrow in its flash estimate. 

New Zealand:

New Zealand posted a NZ$306mn surplus in January, the third consecutive month of surplus. Export growth has been supported by strong Chinese demand for dairy products. A record 30% of total exports went to China in January. 

United States:

Fed chair Janet Yellen testified in the Senate. While the prepared statement was identical to remarks delivered earlier in the House, Yellen confirmed that the Fed was on track to taper and said that the Fed still intended to end quantitative easing some time in the fall.

She acknowledged "A number of data releases have pointed to softer spending; part of that softness may reflect adverse weather conditions. It's difficult to discern how much".

Yellen said that the Fed would be open to reconsidering in response to a question on whether the Fed would consider changing the rate of taper if weather turned out not to be the main factor in recent economic weakness.

However, Yellen also said "I wouldn't want to jump to conclusions here".

US initial jobless claims rose 14k to 348k in the week ending 22 February, a sizeable gain and with no identifiable seasonal distortion to the data according to the Labor Department. 

US durable goods orders fell 1.0% in January, with falling aircraft orders once again a significant driver.

Auto orders were down for the second month running. Core capital goods orders excluding defence & aircraft rose 1.7% in December, but failed to reverse the December fall revised to -1.8%, leaving a slightly weaker picture of core orders at the turn of year.


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