St George Economics economy and finance update
The US stockmarket had a stronger session on Friday night, following the release of upbeat results from Hewlett-Packard. The Dow and the S&P 500 gained 0.9% and the Nasdaq rose 1.0%.
Bonds were little changed, with investors sitting on the sidelines ahead of testimony from Fed Chairman Bernanke this week.
Improved risk appetites saw the Aussie dollar gain ground against the major currencies, rising back up to 1.0308 US dollars. The Aussie posted a strong gain versus the Yen on expectations of aggressive monetary easing from the Bank of Japan on talk Kuroda will be the new Bank of Japan head.
Sterling weakened against the major currencies on Friday night, after Moody's cut the UK's credit rating. Sterling selling continued at the open this morning.
Commodities weakened, led by copper, with the stronger US dollar (against most currencies) a negative for copper.
RBA Governor Stevens was fairly upbeat in his testimony to parliament, with the testimony consistent with the recent Statement on Monetary Policy.
He said "...there is a good deal of interest rate stimulus in the pipeline. At its meeting earlier this month the board judged that it was sensible to allow it time to do its work."
He also noted, however, "it is fair to say we have maintained a bias to ease at the moment."
Stevens indicated the high Australian dollar meant the cash rate may be a bit lower than it would otherwise have been, but said the RBA was not specifically aiming to "try and get the exchange rate to come down, but they are offsetting the contractionary effects of the high exchange rate on the economy."
Overall, the testimony from Stevens suggested the RBA could lower interest rates further if necessary. We continue to expect a rate cut from the RBA in April.
The German IFO business climate index was stronger than expected, rising to a reading of 107.4 in February, from 104.3 in January. This was the fourth consecutive increase in the index, taking it to the highest level since April last year.
Ratings agency Moody's cut the UK's credit rating from a top rating of Aaa to Aa1, citing weakness in the medium term growth outlook which it now expects to extend for a number of years. The outlook on the credit rating is now stable.
There was no US data released on Friday night.