Chinese Silk Road spending plan boosts global markets

Share Markets:

Global equity markets rallied in both Europe and the US. M&A activity in the pharmaceutical industry boosted stocks.

A spending plan from China to boost trade through the Silk Road was also supportive of sentiment, and was supportive of stocks in China.

The Dow closed 1.5% higher, and the S&P500 rose 1.2%.

Interest Rates: 

US treasuries were relatively unchanged, despite the more positive sentiment in equity markets. Yields on 10-year US treasury notes were down 1 basis point to 1.95%.

In Australia, yields on 3-year bonds implied by futures were unchanged at 1.68% and yields on 10-year bonds were up 1 basis point to 2.37%.

Foreign Exchange:

The US dollar index gained, while the euro weakened. Concerns over Greece continued to weigh on the euro despite an encouraging lift in confidence and a lift in German inflation.

The Australian dollar weakened in step with the stronger US dollar. Falling iron ore prices and shortening odds that the RBA could cut interest rates in April weighed on currency.

Commodities:

The widely-watched CRB commodity price index weakened. Gold prices fell, weighed down by a stronger US dollar and the likelihood of a Fed rate hike this year.

Spot iron ore prices dropped to the lowest since at least 2008, when records began, reflecting the ongoing increase in global production. 

Australia: 

A discussion paper on Australia's tax system was released by Commonwealth Treasury yesterday ahead of a white paper.

It set the groundwork for an increase in the GST, which was the one of the lowest in the developed world. Meanwhile, income tax and company taxes were relatively high.

On other taxation issues, it suggested one standard tax rate for all forms of saving to correct the uneven taxation through bank deposits, property, shares and superannuation.

On investment property, the paper questioned the halving of capital gains tax since 1999 rather than negative gearing itself that was driving investment in rental properties. 

Europe:

The European business climate indicator improved from 0.09 to 0.23 in March, matching November's reading which was the highest since June last year.

Eurozone economic confidence rose from 102.3 to 103.9 In March, its highest reading since mid-2011, before the sovereign debt crisis hit. 

Taken with a strong lift in consumer confidence, sentiment broadly across the zone has clearly recovered since slumping over recent years. 

German inflation recovered further from an annual decline of -0.1% in February to 0.1% in March.  Energy prices have been behind recent volatility however price pressures among other goods are low. 

Japan:

Industrial production was weaker than consensus expectations, falling 3.4% in February, after rising 3.7% in January.

This was the weakest result since June last year and together with recent consumer spending and inflation data adds to concerns about the economic outlook for Japan.

For the year to February, Japanese industrial production has declined 2.6%, a slight improvement on a decline of 2.8% in the year to January.

United Kingdom:

UK mortgage outstandings rose £1.7bn in February, the highest in six months. Mortgage lending is still below its peak in early 2014. Meanwhile consumer credit outstandings rose £0.7bn in February.

United States:

US personal spending rose just 0.1% in February after falling 0.2% in January.

Spending on durable goods fell 1.0%, while non-durables spending (including gasoline) bounced modestly and weak 0.1% growth in services spending.

The cold weather likely impacted on sales. 

Personal income was up 0.4% in both January and February, boosted by increased dividend payments, suggesting that there has been a marked increase in saving.

Indeed, the household saving rate rose from 4.4% in November to 5.8% in February. The core PCE deflator was steady at 0.1% in February, for a 1.4% annual rate but an annualised pace in the latest three months of just half that, 0.7%.

US pending home sales jumped 3.1% in February, their sharpest rise since May last year. The level of sales was the highest since August 2013.

A slump throughout the second half of 2014 has now been recovered.

This report follows decent new home sales gains in recent revised data.

Housing is certainly not on fire, but neither is it showing renewed weakness.

The US Dallas Fed factory index dropped from -11.2 to -17.4 in March, its third consecutive monthly decline.  This region is affected by the fall in oil prices and the wind down in oil production.



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