Mining industry pulls down private business spending numbers

Share Markets:

European share markets rose on good earnings reports while lower oil prices weighed on US markets overnight.

The German Dax index rose 1.0% to set another record level while the FTSE 100 was up 0.2%, also reaching a new record high.

In the US, the Dow was down 0.1%, the S&P500 fell 0.2% while the Nasdaq rose 0.4% on deal news in the technology sector.

Interest Rates:  

US long bond yields moved higher overnight as US core CPI numbers were a little firmer than the market has expected.

With that in mind, US 10 year government bond yields are only a whisker above 2.0% while 2 year US bonds currently yield just 0.65%.

These rate appear high when compared to the German 10 year bond rate of 0.3%.

Australia's 10 year government bond rate fell 8 basis points yesterday to 2.42% while 3 year bond yields fell 6 basis points to 1.80%.

Foreign Exchange:

The US dollar index was firmer overnight and is close to its highest level in 10 years.

The prospect of a rate rise in the US appears to be supporting the USD and last night's firmer than expected core CPI added fuel to that speculation.

The AUD was generally weaker against all the majors overnight.

Commodities:

Copper rose in response to speculation that China will introduce further measures to stimulate its economy.

Gold was marginally higher at just above $US 1200 per ounce compared to US$1300 per ounce in January.

The price of West Texas crude fell 3.4% overnight as US oil stockpiles continued to rise.

Australia: 

Private business spending (or capex) fell 2.2% in the December quarter.

The decline was entirely due to a sharp fall in mining capex.

The annual pace was negative 3.6% and the annual rate has now been in decline for eight consecutive quarters.

The good news was that capex in non-mining industries increased in the December quarter.

Manufacturing had its first increase in capex in five quarters and services (or other selected industries) grew at its fastest annual pace in seven years. 

However, this was where the good news for non-mining investment ends.

The outlook for capex appears darker, as indicated by the intentions survey.

The first estimate for 2015-16 was disappointing. Based on the 5-year average realisation ratio, we estimate that capex spending will decline 16.1% in 2015-16 from 2014-15.

While mining investment was largely behind the decline, which was expected, non-mining investment plans were also weak.

The first estimate for spending can be quite far from where actual spending lands.

However, the RBA will not gain comfort from this capex survey. 

A stalling recovery in non-mining investment would mean that another rate cut is likely. We continue to favour May as the most likely timing, but cannot rule out an earlier move.

Full-time, average weekly earnings (ordinary time) grew at an annual pace of 2.8% in the year November.

The relatively soft pace coincides with the subdued growth in the wage price index data yesterday.

China:

No major data released.

Europe:

The number of German workers unemployed fell by 20k during February however Germany's unemployment rate remained at 6.5%, a rate fairly similar to that of Australia.

Eurozone surveys of consumer and business confidence were mixed but overall did point to slow growth ahead.

The modest improvement in sentiment was broad-based with Spain, France and Greece participating in the rise. 

New Zealand:

New Zealand posted a small surplus of NZ$56mn in January, the first surplus in seven months.

For the month, the decline in imports outpaced a decline in exports.

Exports were down 9.1% on a year ago. Meanwhile imports were down 3.8% on a year ago.

United Kingdom:

No major data released.

United States:

US headline CPI fell 0.7% in January, for an annual pace of inflation of negative 0.1%.

That compares with 0.8% in the year to December. Much of the decline was due to the fall in oil prices.

If energy and food are taken out of the numbers, the annual rate of core inflation stood at 1.6%.

The rise in the core rate was a touch stronger than had been anticipated.

The core rate of 1.6% remains below the Federal Reserve's target of 2.0%.

Durable goods orders rose 2.8% in January. Aircraft orders boosted the result. The core result, which excludes the volatile aircraft sector, rose 0.3%.

House prices, as measured by the Federal Housing Finance Agency (FHFA) rose 0.8% in December to be up 5.0% over the year.

The Kansas Federal Reserve manufacturing index fell to 1 in February, down from a reading of 3 in January and 8 in December.



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