US rate hike looks likely given strong US data

Share Markets:

The US stockmarket softened as investors brought forward their expectations for a rate hike from the Fed, following strong US economic data.

The Dow fell 0.3%, the S&P 500 was down 0.2%, while the Nasdaq rose 0.2%. This followed strong gains in Europe, with the Euro Stoxx up 1.8%.

Interest Rates: 

US government bond yields rose following upside surprises on US core PCE inflation data and GDP data on Friday night.

Federal Reserve Governor Powell said the Fed's data driven approach to interest rate decisions means the committee is "likely to surprise markets from time to time."

Foreign Exchange:

The US dollar index (against a basket of currencies) rose sharply on Friday night, following the stronger than expected US economic data. "Brexit" concerns weighed on Sterling, with GBP/USD falling from a high of 1.4043 to currently trade at 1.3863.

The Aussie dollar weakened against the broadly-stronger US dollar, with AUD/USD falling from a high of 0.7257, to trade around 0.7132 at the time of writing.

The weekend G20 statement included concern over foreign exchange volatility and "Brexit", but there were no specific co-ordinated plans for action.


Copper and oil prices gained as investors concerns about the global growth outlook eased following upbeat US economic data.


There was no data to report locally.


New home prices rose 0.4% in January, according to an average of major Chinese cities. On a year ago, prices rose 2.5%, suggesting further stabilization in housing.

Gains continue to be led by the larger cities including Shenzhen, Beijing and Shanghai.


National CPI was unchangedin the year to January. Excluding food and energy, inflation remained subdued, rising 0.7% in the year to January.

Both measures of inflation were in line with expectations and indicate that price pressures remain very low.

New Zealand:

New Zealand's trade balance just swung back into surplus at NZ$8mn in January, the best result in seven months.

The trade position was helped by the impact of falling crude oil prices on its import bill and relatively healthy exports in dairy and agriculture.

United Kingdom:

Consumer confidence fell to zero in the February release from GfK, down from +4 in the previous month. It was the weakest since December, reflecting concerns over the outlook for the UK economy. 

United States:

Personal income and spending and the inflation measure, the PCE deflator, were all stronger than expected in January. Personal income rose 0.5% in January.

For the year to January, personal income lifted 4.3%. Personal spending also rose 0.5% in January and is up 4.2% for the year to January.

The PCE deflator rose 0.1% in January, which lifted the annual rate up to 1.3% for the year to January, from 0.7% in the year to December.

The core PCE deflator, which is the Fed's preferred inflation measure, rose 0.3%, the largest monthly increase since January 2012.

For the year to January, the core PCE deflator rose 1.7%, up from 1.5% in the year to December. This was the highest annual rate since February 2013. It is an encouraging sign that inflation is edging towards the Fed's 2% inflation target.

GDP growth was revised up to 1.0% for Q4, from an earlier estimate of 0.7%. This compared to consensus expectations for a downward revision.

The stronger result reflected an upward revision to business inventories. Consumption spending was revised slightly lower, however.

The University of Michigan consumer confidence index was revised up to 91.7 for February, from an earlier estimate of 90.7.

Although confidence fell in February, from a reading of 92.0 in January, the latest reading remains firm.

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