Market Watch – February 2014
- The Reserve Bank of Australia (RBA) held the cash rate steady at 2.5% for a seventh consecutive month at its 4 February 2014 meeting.
- The RBA surprised some by explicitly removing its mild easing bias and reference to the Australian dollar (AUD) being “uncomfortably high”. The Board is now looking for a “period of stability in interest rates”, with policy settings expected to remain unchanged for a number of months.
- In its quarterly Statement on Monetary Policy (SoMP), the RBA revised-up its growth forecasts by 0.25% across most periods, with Q4 13 GDP now expected to be 2.5% per year. A return to near-trend growth of 3.0% per year is expected in the first half of 2015.
- Retail sales rose for an eighth consecutive month in December, up by 0.5% to be 5.7% higher over the year. This was the strongest outcome in four years.
- The US Congress voted to suspend the debt ceiling until 15 March 2015.
- Retail sales declined by 0.4% in January. This was attributed to bad weather (coldest start to a year in 20 years) and also uneven labour market performance.
- The NAHB (National Association Home Builders) index fell by 10pts to 46pts in February, the steepest fall on record, due to the disruptive weather. Housing starts plunged by 16% per month in January, as the unseasonably mild weather that boosted November starts by 22.5% per month turned into the coldest winter in two decades.
- The European Central Bank (ECB) left its policy stance unchanged at its 6 February 2014 meeting and provided no indication that further easing was likely in coming months.
- Eurozone GDP grew by 0.3% (+0.5% per year) in Q4 13, slightly above expectations. This was the highest reading since Q4 11. There were upside surprises in the national data, most notably from France, which lifted output by 0.3%. Italy contributed with a 0.1% expansion, its first quarter of growth in 2½ years. Spain had previously reported 0.3% growth.
- February’s Eurozone inflation figures came in a bit stronger than expected. The 0.8% per year headline rate was unchanged from the January, but above the consensus for 0.7% per year. While energy price inflation fell, the core rate nudged up from 0.8% per year to 1.0% per year per year, the highest rate since September.
- The Bank of England’s Monetary Policy Committee (MPC) maintained policy at its 6 February 2014 meeting, as expected.
- Headline CPI inflation was weaker than expected in January at -0.6% and 1.9% per year This is the first time since late 2009 that headline inflation has come in below the Bank of England’s 2% target.
- The December labour market report was a bit weaker-than-expected. The unemployment rate rose by 0.1%/pts to 7.2% while employment rose by 193,000 in the three months to December.
- Real GDP grew at just 1.0% per quarter far lower than the market consensus. Trade was the key drag, with the contribution of net exports (-2.2%/pts), weighing on growth as imports more than offset a marginal positive contribution from exports.
- Retail sales posted the biggest increase in January (+1.4%) since April 2012, rising by 4.4% per year.
- Chinese exports rose by 10.6% per year over the year to January while imports rose by 10.0% per year The strength was in exports to the US (+10.7% per year) and the EU (+19.2% per year), suggesting positive overseas demand.
- The Chinese Renminbi (RMB) saw its largest fall on record against the US dollar, falling by 1.3% in February.
- The Australian dollar (AUD) increased by 1.9% per month to finish February at $US0.8924, supported by the RBA’s more neutral policy stance. China’s January trade data was also strong.
- Commodities prices generally increased in February, driven by rising energy prices, in particular. Supply disruptions in Africa and a weaker USD propelled the oil price (+2.0%) higher during the month. Gold continued its strong start to the year, increasing by 6.6% in February, supported by the Fed’s continued accommodative policy stance around interest rates and increasing geo-political risks in Ukraine. Base metals (+1.4%, London Metal Exchange), rose by 1.4% during the month.
- Food prices were also higher in the month, as adverse weather conditions among key agricultural producers hampered the supply outlook. The iron ore price fell below $US120 per tonne for the first time since July 2013 finishing February at $US118.10.
- Gold (+3.2%) was boosted by risk aversion as emerging market tensions escalated.
- Australian shares were quite volatile at the beginning of this year. January’s 3.0% decline in the S&P/ASX 200 Accumulation Index was followed by a 5.0% rise in February, pushing the market up towards its highest level since mid-2008.
- Most ASX-listed companies reported their earnings for the six or 12 months ending 31 December 2013 during the month, which provided a steady stream of company news.
- Dividend payout ratios were also reasonably good, which adds to the potential return from Australian equities. The Australian sharemarket as a whole currently offers a dividend yield of nearly 5%.
- The Australian listed property sector, as represented by the S&P/ASX 200 Property Accumulation Index, increased by 4.3% in February on a favourably received set of earnings results for the period ending 31 December 2013.
- Most global developed equity markets rebounded in February, as investors were encouraged by new Fed Chair Yellen’s testimony which reinforced that interest rate hikes in the US should not be expected any time soon. The MSCI World Developed Markets Index increased by 4.8% in USD terms and 2.7% in AUD terms over the month.
- The US S&P500 Index increased by 4.3%. Positive earnings news and Facebook’s $US19bn acquisition of mobile messaging company WhatsApp boosted sentiment.
- In Europe, the Euro Stoxx 50 Index (+4.5%) and the London FTSE100 Index (+4.6%) both increased.
- The Japanese Nikkei 225 Index fell a further 0.5%, as fears over stalling economic and corporate earnings momentum, together with concerns over the impact of the consumption tax hike on consumers weighed heavily on investors.
Global emerging markets
- The MSCI World Emerging Markets (EM) Index partially reversed its January plunge, increasing by 1.1% in AUD terms in February.
- Indonesian shares (+10.2%, MSCI Indonesia Index, in USD terms) performed strongly, benefitting from improving trade (three consecutive months of surpluses)
- Taiwan was the poorest performer, impacted by mixed global economic data and proposed tax reforms.
- The MSCI Emerging Markets EMEA Index outperformed its peers, surging by 2.9% in AUD terms over the month.
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