St George Economics economy and finance update

Share Markets:

Sentiment weakened on fears that the Italian election could lead to a political gridlock.

The run of economic data was also lacklustre, although only minor data was released. The Dow and S&P500 fell 1.6%, while the Nasdaq fell 1.4%.


US treasuries rose (yields fell) which saw 10-year yields fall to a one-month low. Demand for bonds was boosted by concern about the outcome from the Italian election.

However, the reaction in Italian bond markets was muted. Italian ten-year government bond yields rose just four basis points. 

Foreign Exchange:

Risk aversion saw the US dollar index edge higher. Meanwhile, the euro fell to its lowest in six weeks, weighed down by political concerns in Italy. Lower risk appetite had limited impact on the Australian dollar, which was little changed at around 1.029. 


Commodity prices were higher, although uncertainty around Europe limited gains.  Oil prices were supported by Chinese data revealing a jump in oil imports. Euro zone fears boosted the safe-haven appeal of gold.


No domestic data to report.


The flash reading on China's HSBC manufacturing PMI showed it fell to 50.4 in February, from a two-year high of 52.3 in January. This was the lowest reading since October last year, although it remains above the 50 level, indicating expansion in manufacturing activity. 


Projections for the Italian election are forecasting a win for Bersani's party winning the lower house, but Berlusconi ahead in the Senate.

Such an outcome would lead to an ungovernable situation and potentially trigger a new election. It provides uncertainty about whether Italy is able to implement necessary economic reforms.

United Kingdom:

UK mortgage lending slowed from 33.4k new loans in December to 32.2k in January according to BBA data.

United States:

The Dallas Fed factory index slipped from 5.5 to 2.2 in February, more than reversing the gain in January, but remaining positive for the third month running.

This follows contractionary readings in seven of the eight previous months. The detail showed production, orders and jobs all recording slower growth in February.

The Chicago Fed national activity indicator slowed from 0.25 to -0.32 in January, and indicates a softer overall activity picture than in November to December.

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