Kieran Salsone

Economic optimism from election has faded

Share Markets:

Mixed economic signals out of the US dampened the appetite for risk assets overnight.

The services sector appeared weaker while factory orders were firmer than expected.

European markets were either flat or down while US equity markets were modestly weaker.

The Dow fell 0.3% and the S&P500 fell 0.1% while in Europe the FTSE was flat, the Dax fell 0.1% and the French CAC40 was down 0.5%.


US long bond yields retreated below 3.00% to 2.96% on the softer than expected US services numbers while two year bonds were steady at 0.39%.

US three month government bills remain close to zero at 0.05%. In Australia, long bond yields continue their steady climb.

At the end of September 2013, ten year government bond yields stood at 3.80%. Today they sit at 4.38%. Three year government bond yields have risen from 2.70% to 3.02% over the same time period.

Foreign Exchange:

The US dollar index dipped following the weaker than expected US ISM services numbers but recovered some ground later in the session.

The AUD traded close to its lows for the day, early in overnight trade, and then gained ground as the US services numbers emerged.

The AUD opens today close to where it left off in yesterday's Australian trade.


Oil prices fell overnight despite concerns over renewed gunfire in Libya and the stronger than expected US factory orders.

With the growing supply of alternative energy (gas) in the US, weakness in oil prices seems likely to emerge over time unless demand picks up from elsewhere.

Gold was essentially flat while copper prices rose marginally on the US factory orders data.


The AiG performance of services fell from 48.9 to 46.1 in December.

The fall follows three consecutive months of improvement.

The disappointing decline likely reflects fading optimism after the election, and comes despite rising household wealth and low interest rates.


The HSBC-Markit Services PMI fell from 52.5 to 50.9 in December, the lowest in six months.

The decline mirrors the fall in the official non-manufacturing PMI, pointing to a loss a momentum in the services sector.

Taken with other PMI indicators, it points to softer growth towards the end of 2013.

However, the Chinese economy is expected to post growth of around mid-7% around the authority's target. 

United States: 

The December US ISM non-manufacturing (or services) composite index fell to 53.0 from November's 53.9, October's 55.4, and a 58.6 seven-year high in August.

Market consensus for December was 54.7. The numbers cast a shadow over the pace and sustainability of the US recovery and suggest that Fed tapering will be mild rather than robust.

Working in the opposite direction, November factory orders grew 1.8%, while shipments were up 1.0%. This set of number exceeded market expectations.

US factory new orders were up 4.0% over the year and unfulfilled orders were up 7.7% suggesting plenty of work on hand and potentially the need to lift employment.

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