Skilled Vacancies

Australian skilled vacancies rose 0.6% in March after a flat outcome in February. This number continues the recent trend of job creation we have seen over the past six months, and signifies that the natural disasters have not dented business confidence to heavily. It is numbers like this that will see the RBA remain content with their mildly restrictive monetary policy.

Today in Australia will see Retail Sales for February released along with Building approvals, Credit Growth and RP Data – Rismark house prices.

Sovereign Debt Concerns Continue

Sovereign debt concerns in Europe escalated overnight, with Portugal being further downgraded by one notch and Greece downgraded by two notches. The pressure these two countries are experiencing to drastically cut their budgets will likely see stifled growth in their respective regions for a continued period.

There are rising expectations that the ECB will lift their rates next month, with the majority of Bloomberg economists predicting a hike in their cash rate.

In Australia today, ABS Job vacancies for Q1 will outline the current state of labour demand, while DEWR Skilled Vacancy survey for March will provide an alternative outlook into current business conditions.

Portugal Bank’s Downgrade

S&P downgraded 5 Portuguese Banks after last week’s Sovereign downgrade, and noted that there could be another sovereign downgrading this week. This prompted political leaders from the 3 largest political parties to commit themselves to deficit reduction.

Malcolm Edey, the RBA’s Assistant Governor, is talking to a cards conference on the ‘RBA’s Strategic View of Payments Innovation’ today.

Portugal

The problems for Portugal continue with S&P downgrading them two notches to BBB and placing them on negative watch. Their 10yr bonds sold off to 7.79% and 5yr CDS spreads blew out to a near record 546 bps

The appetite for the AUD continues and a move towards more risky assets has fueled this rise (up to 102 and expectations for rise to continue) as well as a move out of government bonds into other more higher yielding opportunities.

US 4Q GDP was revised up to 3.1%, from the previous (second) estimate of 2.8%, and was slightly above market expectations of3.0%. Employment is still a drag and a clearer picture will be painted here on Friday when non-farm payrolls are out for March.

Basel III Conference

Malcolm Edey, the RBA Assistant Governor, gave a speech at the Basel III conference in Sydney yesterday. The Assistant Governor outlined how the new standards would affect Australian Banks, and how well prepared they were to meet the new reserve ratios. He acknowledged that Australian banks had performed well during recent shocks, however he noted that there would be less expansion in credit, meaning that double-digit profit growth would be unlikely in the future.

Portugal’s Prime Minister resigned yesterday after the Parliament rejected new austerity measures. The rejection means that Portugal has moved slightly closer to a bailout package from the EU, and equity markets gained on the back of the optimism. On another note, Fitch downgraded Portugal’s long-term credit rating to A-, from A+.

No key data in Australia today.

Graeme Kraehe Interview

An interview with RBA Board member Graeme Kraehe yesterday acknowledged that there would be some short term slowing in the Australian economy from Japans current difficulties. This was in reference to his view that the earthquake disruptions would slow Australia for around six months, however the long-term prospects would not be diminished. Kraehe outlined the point that as construction efforts get underway, there will be a boost in demand for our resource exports. Sam Walsh, head of Rio Tinto’s Iron ore business, stated that they are still shipping as hard as they can, however he noted that their expansion plans may be impacted by tight equipment supply from Japanese manufactures.

Oil prices were once again higher overnight, despite the easing we saw in the local time zone yesterday. The Libyan conflict is once again at the centre of attention, as a US Fighter Jet reportedly crashed in Eastern Libya.

UK CPI came in higher than expected overnight, at 0.7% for the month of February. This result will place further pressure on the ECB to increase rates at their next meeting.

No data or speeches in Australia today.

Treasurer Speech

In a ministerial statement to the house yesterday, Wayne Swan provided the parliament an update on the impact of local and overseas disasters on the economy. The Department of Treasury is expecting lower demand for steel making inputs from the closure of some Japanese steel mills, however expects natural gas sales to be increased. Swan also mentioned that Australian food prices were likely to contribute a 0.5% (or more) to Q1 CPI on the back of cyclone Yasi. The Treasurer made no mention of how the rebuilding phase in Japan would affect our exports.

Concerns have once again surfaced regarding Portugal’s debt crisis, as there was speculation that European leaders are considering pushing back a decision on funding an expanded bailout.

The RBA will publish their Financial Stability Review of the Economy’s Financial Health at 11.30 today.

Merchandise Imports

Australian merchandise imports for the Month of February rose by 5.9% after falling 5.4% in January. Although this number may indicate a return in confidence by consumers, the number does hold some statistically volatile items, which may skew the figure. We are still expecting the retail sector to remain subdued until local and global weather events have ceased.

Finally, we can outline some positive news from Japan, where it has been reported that local authorities may be getting on top of the dangers at Fukushima power plant. As a result, Investors moved back into Asian equities and the Yen was sold off, which will be welcome news for Japanese exporters.

The Libyan conflict continued to escalate overnight as the Allied forces attempted to expand the no-fly zone to the south of the country. The U.K foreign Secretary, William Hague, didn’t rule out the possibility that U.K special forces could be deployed as the allied mission grows. The continuing violence has moved oil futures (April delivery) $1.26 higher, as the market continues to look for the type of stability that would see a constant supply of oil.

No local data today.

G7 Finance Meeting

The G7 Finance Ministers meeting last week saw a general consensus to intervene in the currency markets in order to stop the appreciation of the Japanese Yen. The Central Banks of the US, UK, ECB, Japan and Canada all intervened in order to aid Japanese exports and help with the economic recovery.

Tensions in Libya over the weekend continued to escalate as Allied forces joined in an effort to target military infrastructure. Despite the ceasefire, Libya continued to fire their anti-aircraft guns adding to the tension in the region. Continued military action will likely see oil prices continue to rise until stability in the region returns to normal levels.

China, for the third time this year, has increased their reserve requirements for banks by another 50 basis points.

The highlight this week on the data front will be the Financial Stability Report, which will be published by the RBA on Thursday. The focus however will continue to be on the Middle East and Japan, as the instability continues to threaten global growth prospects.

Markets still watchful of Japan

There were no local news events yesterday, however the focus continues to be on Japan. It seemed to be a case of no news is good news, and although Japan did not get any better, bargain hunters jumped on risk-weighted assets anticipating some value trades. The Australian cash markets are still pricing a chance that the RBA’s next move will be a rate cut, however it is expected that this sentiment will not be long lived.

The ongoing crisis in the Middle East and North Africa has continued to see oil prices trend higher, with WTI April futures rising 3.7% to $101.61 a barrel.

On the local front, it looks like it will be a quite end to the week, however any updates from the Japanese nuclear saga will be closely watched.

Nuclear Threat Continues

For the third day/night in a row, concerns over the escalating problem at Japan’s nuclear power plant sent markets tumbling. Equity markets in the US and Europe plummeted following comments from the EU commissioner for energy, that the Fukushima nuclear plant if effectively out of control. The AUD also printed a new low, falling to 0.9762, as the market has priced in a 50% chance that the RBA will instigate a rate cut by mid-year. We must again reiterate that the chances of this are highly improbable.

New tensions in the Middle East also added to market worries, with security forces in Bahrain and Libya brutally cracking down on protestors. As a result, oil prices were higher, with Brent Crude rising by 2%.

Australian Dwelling starts for Q4 2010 fell by 5.3%, much worse than the -1.4% forecast and after a fall of 13% in Q3.

No local data due in Australia today.

Traders Pricing Rate-Cut

It has been a hectic 24 hours for traders with Japan right at the forefront of market volatility. Fears of nuclear explosions and radiation leakages were high as another blast at the Fukushima plant sent traders into risk aversion mode, causing the AUD to fall around 3 cents to a low of 0.9816. The futures market also rallied, and at one stage yesterday had priced in a 65% chance that the RBA would drop the cash rate by 25bp in April, before settling back to 34% this morning. This presumably reflected that Japan is Australia’s second largest trading partner, however at Curve Securities it is our view that there is virtually a nil chance that the RBA will lower the cash rate. The RBA must remain consistent with their policy and not appear to be chopping and changing on the back of short-term setbacks. It also must be noted that the rebuilding phase that Japan will undergo will most likely see higher demand for Australia’s commodities in the not to distant future.

As a result, BBSW this morning is significantly lower, with the 90-day bank bill dropping from 4.94% to 4.85% and the 180 day falling 14bp, from 5.07 to 4.93%. We expect this to be short lived.

The Key Statement from the RBA minutes, released yesterday, noted that there had been no substantial alterations in the outlook for our economy or monetary policy. Despite the fact that our short term prospects have diminished on the back of natural disasters, and the problems associated with de-watering the coal mines (increasing the downside risks to growth), the RBA still remains happy with their current stance. The medium term outlook still remains strong with solid growth expected in the resource sector and further growth in employment remains likely. The RBA has revised their CPI forecast for June 2011 to 3%, as cyclone Yasi affected food prices from domestic producers. The current policy still remains mildly restrictive, and the RBA remains comfortably on hold for the time being.

Second tier data to be released in Australia today, with the leading index for January to be released along with Q4 2010 dwelling starts. NZ Q1 consumer confidence may be worth taking note, and UK employment for February will also be released. New developments from Japan will also be keenly watched.

Earthquake Aftermath

The devastating Japanese earthquake continues to dominate the talk in the markets, with the Bank of Japan supplying a record 7 trillion Yen first thing in the morning in order to sooth the markets and boost liquidity. Concerns over the reactors have hit nuclear related stocks, and spot Uranium fell 11% while oil was marked higher.

In response to the earthquake, the Bank of Japan has announced they will extend their quantitative easing program, which will include the purchasing of ‘risk assets’.

Today is Australia, the RBA’s Guy Debelle is speaking on the Australian Bond market and the RBA minutes from this months meeting will be released.

Japanese Earthquake

Japans devastating earthquake on Friday has resulted in tragic loss of life, with an estimated 10,000 deaths in Miyagi Prefecture alone. The earthquake, measuring a staggering 8.9, was followed by a tsunami, which tore through the coastal cities of Japan. For the economy, the Government will have a massive reconstruction and repair task ahead and will need to borrow heavily in order to do this. Just like New Zealand, the Bank of Japan will likely embark a policy of Quantitative Easing in order to ease the pain and kick-start the economy.

For Australia, exports may suffer initially as Japan is our second largest export market (18% of exports), however the rebuilding phase will most likely increase demand for our commodities.

Figures released last Friday in China saw CPI unchanged at 4.9%, slightly above the market forecast of 4.8%. Industrial production was also higher for the month February, rising by 14%yoy.

The highlight of the week ahead will be the RBA minutes to be released on Tuesday, with other second tier data to be spread out over the week. On Thursday, the market is expecting India to raise their cash rate.

Employment Data

Employment data released yesterday showed 10,100 jobs were lost for the month February, after a rise of 7,700 in January, and well below the median market forecast of 20,000. Despite this, full time employment saw 47,600 new jobs created while part time employment fell 57,500, with a substantial part of the loss saw in Queensland. Unemployment remained steady at 5.0% with the participation rate falling from 65.9% to 65.7%. Look for the positive jobs trend to continue once the reconstruction efforts in flood-devastated areas begins.

The Chinese trade balance unexpectedly moved into deficit for February, to the tune of $7.3bn after a $6.45bn surplus in January.

Moody’s downgraded Spain one notch to AA2, with a negative outlook. This brings Moody’s rating in line with S&P.

No Key data in Australia today, however the focus will be on China where we are expecting a plethora of data.

Consumer Sentiment

Consumer’s sentiment for the month of March remains cautious, confirming the NAB Business survey’s acknowledgement of weak retail conditions. The Westpac-Melbourne Institute survey pulled back by 2.4%, more than counteracting the 1.9% growth in February. Rising energy and food costs appear the reason for the cautious spending behavior, as consumers are expecting prices to rise over the next year.

Glenn Stevens, the RBA Governor gave a speech in London this morning, and outlined the challenges ahead in taking advantage of the resources boom. The RBA assistant Governor gave similar speech yesterday, stating that with little spare capacity within the economy, we could note cope with above trend growth without strong inflationary implications. This suggests that the RBA will remain on the inflation alert for the time being, and will likely keep their mildly restrictive stance for some time.

Australian housing finance fell 5.3% in January, with investor approvals falling by 6.8%.

The RBNZ cut the official cash rate by 50bp yesterday to 2.50%, following the earthquake in February.

Employment data is to be released in Australia today, and we are expecting the trend of strong labour demand to continue. The market is expecting the unemployment rate to fall from 5.0% to 4.9%.

NAB Business Survey

The NAB Business survey for the month of February was released yesterday, showing that business confidence had slightly recovered from the flood ravaged January. Despite confidence raising slightly, business conditions in some sectors remains weak as profits continue to be under pressure. Industry conditions proved stark evidence of Australia’s two-speed economy, with conditions strongest in mining (+21) and recreation (+14), and weakest in retail (-16) and manufacturing (-14).

The ECB member Alex Weber said that he sees the signaling of a rate move as quite necessary. This comes on the back of fears that England’s Quantitative Easing measures may be inflationary.

Today in Australia will see January housing finance approvals and Consumer confidence for March released. The RBA assistant Governor Phillip Lowe is also speaking at 10am in Sydney today, and he will be talking about “Changing Relative Prices and the Structure of the Australian Economy”.

ANZ Job Ads

The ANZ Job Ad’s release yesterday continued the trend in advertisements over the last 12 months, rising 1.2% for the month of February. As per normal, Internet ads were higher, up by 1%, and classified ads bucked the trend by rising by 4.4%, after a steady decline in recent months. The momentum clearly remains positive and underlying demand for labour continues to hold. February’s labour force report is due out Thursday, and the market is expecting further gains in employment and the unemployment rate to fall below 5%.

Moody’s lowered Greece’s sovereign debt rating overnight, dropping it by three notches to B1. They also cautioned that there could be more to come.

Two small mutual’s, Resources Credit Union and Industries Mutual Credit Union, have announced a plan to merge.

The NAB Business Survey for the month of February will be released today, and will be a good guide to current business conditions. If you would like a copy of the survey, please contact Andrew Murray on 02 9690 2188 or at andrewm@curvesecurities.com.au.

China 5-Year Plan

China released their 5-year economic plan last week, which outlined the countries strategy to continue to grow at consistently high levels. Despite their growth target being reduced from 7.5% to 7%, it still remains very high in comparison to similarly developed countries. As stated in the report, China’s focus will turn to slowing inflation, as recent numbers suggest that prices have started to rise faster than administration feels comfortable with.

US non-farm payrolls for the month of February rose by 192k, reducing the unemployment rate to 8.9%.

Oil futures were higher again on Friday night, as the struggle for power in Libya continues.

ANZ job ads will be released today, ahead of Thursday’s employment report. Tomorrow will see the NAB Business survey for February, followed by the Westpac – Melbourne Institute consumer sentiment on Wednesday. Glenn Stevens and Phillip Lowe will also be speaking this week.

Australian Trade Surplus

The Australian Trade surplus held up for the month of January, notwithstanding the floods impact on the coal industry. The trade surplus for January came in at $A1.875bn, slightly below the $A2.018bn in December and despite the 29.3% drop in coal exports. With commodity demand expected to increase over the next few years, expect the surplus to continue rising in the short to medium term.

Building approvals fell 15.9% in January, a direct result of the floods in Queensland and Victoria.

While the ECB left the cash rate unchanged at 1.00% last night, the Chairman, Jean-Claude Trichet, indicated a rate rise might be just around the corner.

There is no local data today, however US non-farm payrolls figures will be released for January.

GDP Data

GDP for Australia came in around expectations yesterday, at 0.7% for the final quarter of 2010. The economy as a whole grew by 2.7% last year, a positive result considering that the third quarter grew by just 0.1%. With a flat result expected for the first quarter of this year, we are expecting growth to be around 2.5% for 2011, and accelerating to 4% for 2012.

There is no news due for Australia today.

RBA Holds

As expected, the RBA remained on hold yesterday, leaving the cash rate at 4.75%. The current policy was described as mildly restrictive, however were comfortable with the stance given the positive economic outlook. With commodity prices moving higher, and global inflationary concerns creeping forward, look for the RBA to tighten around the middle of this year.

The focus today will be on the GDP figure to be released. Market expectations of the number have recently been elevated due to higher than expected partial figures leading into today. It is expected that Q4 GDP for 2010 will come in around 0.7% to 0.8%.

Preliminary GDP Data

Preliminary GDP data released yesterday suggested tomorrow’s number may be healthy, with Operating profits, inventories and wage growth for Q4 2010 coming in strong.

India GDP growth for Q4 2010 eased to 8.2%yoy, from 8.9%yoy the previous quarter.

The RBA Board meet today, and we are not expecting any surprises as they have recently indicated they are happy with their current position. The recent natural disasters and soft retail spending, in conjunction the exchange rate have kept short-term inflation in check. Expect the cash rate to remain at 4.75%.