Market still trying to correct massive housing shortage
HIA new home sales fell 1.9% in December. However, the level of sales remained elevated.
Near record-high residential building approvals, on top of another rate cut this week suggests that housing construction and activity will remain at high levels.
Retail sales grew at just 0.2% in December, following a meagre 0.1% growth in November.
The annual growth rate stepped down to 4.1% December, the weakest in 14 months and now below its long-run average.
The good news was that recent weakness in retail values is largely due to subdued price growth.
Australians are still increasing their spending on retail at a healthy pace, when taking out the effect of prices.
Retail volumes, (which exclude the price impact), grew at 1.5% in the December quarter, the strongest quarterly growth in just under two years.
While the data is a positive sign for consumer spending in the December quarter, retail spending in this survey has overestimated overall consumer spending in the national accounts in recent quarters.
While low levels of consumer confidence and subdued income growth could further temper retail spending in coming months, we continue to expect a further moderate pace of growth in consumer spending.
Low interest rates, which have just been lowered further, and the upswing in the housing market should continue to support growth.
Stocks in the US were boosted on M&A activity with Pfizer, while energy stocks rose with a rise in oil prices.
Sentiment in Europe, however, was weighed down after the European Central Bank (ECB) announced it was no longer accepting Greek bonds as collateral.
The Euro Stoxx was down 0.2%. In the US, the Dow rose 1.2%, and the S&P500 rose 1.0%.
Yields on US treasuries rose as better risk appetite weakened demand for government debt. Economic data overnight was also encouraging, citing further strength in the US labour market.
Yields on Australian bonds (based on futures) also rose.
Three-year bond yields rose 3 basis points to 1.89% and yields on ten-year bonds lifted 5 basis points to 2.42%.
The US dollar index weakened overnight.
The euro initially fell after the ECB announcement regarding Greece, but investors shrugged off those concerns and lifted later on.
There was speculation that the Swiss National Bank was buying up euros against the Swiss franc, which would have placed upward pressure on the euro.
The Australian dollar rose to above 78 US cents, supported by the stronger risk environment.
The key risk event today will be the RBA's Statement on Monetary Policy, which will give clues into the RBA's course of action over the next few months.
Oil prices jumped overnight, and have been very volatile in the last few days.
Support for prices came from violence in oil producing Libya which could limit supply, and hopes that Chinese stimulus announced in the previous session would support demand. Gold prices weakened in step with the drop in risk aversion.
Denmark's central bank cut its main policy rate by 25 basis points to -0.75%. It was the fourth time it had cut rates in three weeks.
The reduction in rates is likely aimed at capping capital inflows into Denmark, to ease pressure on the currency peg.
The central bank Governor said that the peg was "an indispensable element of economic policy in Denmark - and has been so since 1982."
German factory orders jumped by a stronger than expected 4.2% in December following a 2.4% decline in November.
This was the largest jump since July. Weak oil prices, the falling euro and monetary stimulus might be providing support to spending. On a year ago, orders are up 3.4%.
Early yesterday morning, the ECB cancelled its acceptance of Greek bonds in return for funding, which will take effect from February 11.
The burden of providing emergency funding for Greek banks will rest with Greece's central bank. The ECB has essentially rejected a request from Greece to the ECB to keep its banks afloat.
The Bank of England left interest rates on hold, as widely expected at 0.50%. We will receive details on the meeting in two weeks' time when the minutes will be released.
The US trade deficit widened to $46.6bn in December from $39.8bn.
This is the largest deficit since November 2012. Markets were expecting a $38bn deficit, and could be starting to reflect the appreciating US dollar.
Imports rose by a larger than expected 2.2%, reflecting higher imports of crude and cars.
US initial jobless claims rose from 267k to 278k for the week ending 31 January. Claims remain sub-300k and further suggest healthy gains in the labour market.