Terms of trade and import prices weak in December quarter

Share Markets:

Share markets were broadly firmer overnight with the UK's FTSE100 index the major exception.

It was down 0.2% due to weakness among oil companies on softer oil prices.

Elsewhere in Europe, the Dax rose 0.3% and the French CAC40 was up 0.4%. In the US, markets were spurred on by some better earnings reports, some good employment numbers and the afterglow of the Fed's assessment of the US economy.

The Dow was up 1.3%, the S&P500 rose 0.9% and the Nasdaq pushed 1.0% higher.

Interest Rates:

US 10 year government bond yields edged higher to 1.76% but remain well down on the 3.00% yields seen in early 2014. 

Australian 10 year government bond yields moved sharply lower and, 2.48%, are now below the overnight cash rate of 2.50%.

Three year Australian government yields fell below 2.00% to 1.97%. Low inflation, the possibility of a cut to the cash rate and high global liquidity are assisting to keep interest rates close to historic lows.

Denmark's central bank cut its benchmark rate for the third time in 10-days, lowering it 15 basis points to -0.50%.

There was no meeting scheduled, but the central bank is struggling to hold its currency peg to the EUR ever since the Swiss National Bank abandoned its peg.

The Danish central bank said it reduced its rate after intervening to sell kroner.

Foreign Exchange: 

The USD index picked up overnight sending the AUD lower and the NZD to a four year low against the USD.

The USD is now at its strongest level in 11 years. The AUD has now fallen into the US 77 cent range.

A stronger economy in the US, the prospect of higher US interest at some time this year and the prospect of low or lower interest rates in other major centres, is keeping the USD firm.


The price of West Texas Intermediate crude oil rose marginally as did the price of Brent oil.

Both remain down some 40% since late November when OPEC decided to maintain its output target. The price of gold slipped on the stronger USD while the price of copper fell over 1%.


Australia's terms of trade (ratio of export to import prices) was modestly lower in the December quarter, as implied by data on trade price indices yesterday.

Export prices were flat in the quarter, while import prices rose 0.9%.

The data suggests that it would be the fourth consecutive quarterly fall in the terms of trade, but a more modest drop than in previous quarters.

The declining terms of trade will continue to place further pressure on national incomes.

A lower Australian dollar has helped to prop up prices of exports and imports. Falling oil prices have also helped keep down import prices.


Retail sales fell 0.3% in December, following a revised 0.2% decline in November.

The annual pace of growth stepped down from 0.5% to 0.2%, well short of expectations of 0.9% annual growth.  

Consumer spending growth has been slow to pick up following the consumption tax hike from April 2014. However, spending should receive a boost from lower oil prices.


Germany's unemployment rate remained stable at 6.5% in January.

However, it suffered 9k job losses on top of the 27k losses in December.

Germany's inflation rate for the year to January came in at -0.3% while its EU harmonised rate was -0.5% for the year. The ECB's QE program is aimed at lifting inflation back towards 2%.

Denmark's central bank cut its benchmark rate for the third time in 10-days, lowering it 15 basis points to -0.50%.

New Zealand:

New Zealand's trade deficit narrowed from NZ$285mn to $159mn in December, taking the annual deficit up to NZ$1.2bn. 

The improvement in December was less than expected, reflecting weaker dairy exports and stronger imports. Lower dairy prices are starting to have a negative impact on New Zealand's trade position. 

United States:

US jobless claims fell 43k to a 265k cycle-low in the Martin Luther King holiday week - the week ending 24th January.

Some of the fall is probably attributable to the holiday distortion, some payback of the early-January claims overshoot, as well as bad weather keeping some applicants at home.

However, the US economy continues to recover.
At the end of January, a Bloomberg measure of consumer comfort rose to its highest level since July 2007.

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