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Low European Inflation

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Australian private capital expenditures surprised to the upside on Thursday, with the quarter on quarter figure showing a 1.1% increase rather than the expected 0.6% decline. Conversely, New Home Sales disappointed, falling by 5.7% instead of an expected 1.2% increase. While the Cap-ex figure was a positive surprise, government forecasts expect cap-ex figures to remain under pressure in coming years as mining investment decreases. The AUD rallied briefly after the announcement to rise one third of a cent, however selling pressure brought the currency back to end the day approximately even.

German Preliminary CPI showed an as-expected 0% change, month on month. The low figure highlights the lack of impact that low interest rates have had on inflation in developed nations. Low inflation, low interest and low expected inflation in the future has pushed German Bunds in to negative yields several years in to the future. This week the short end of the yield curve was negative out to the 3yr bond. Euro Area Flash CPI is still to be released tonight, and is expected to show a year on year inflation rate of 0.3% – a new low since the GFC. At some point, the recent decline in the Euro of 8 cents against the US dollar should begin to have a stabilising effect on inflation, however in the nearer term there has been speculation ahead of next week’s ECB meeting that Mario Draghi may need to add to recently announced stimulus measures in order to prevent a renewed slide into European recession. The Euro fell nearly half a cent in trading yesterday.

US Growth data showed that the US economy was expected to have grown 4.2% last quarter. This was a positive surprise for the US Dollar, as economists had only expected a 3.9% growth rate for the world’s largest economy. US Unemployment claims failed to surprise, coming out roughly as expected at 298,000. Markets did not react strongly to the data, but the US SP500 index closed above the 2000 level for the first time in low volume trading. With many waiting to see tonight’s Euro CPI figure and Mario Draghi’s response next week, other potential shocks may come in the form of US rhetoric in response to the alleged invasion of the Ukraine by Russian forces

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