European Equities Rise As Election Concerns Ease, EU Inflation Lacks Upwards Momentum, ASX SPI200 Futures -8

European equities rose while rising bond yields supported the Euro on Thursday as political concerns eased. The Dutch elections are seen as a bellwether for key elections in France and Germany in 2017 and concerns have been over the rising popularity of anti-establishment parties following Brexit and Trump’s victory in 2016. Current Prime Minister Mark Rutte’s party won the largest number of seats by a comfortable margin while in a blow to populist movements Geert Wilders anti-establishment party won less seats than forecast.

The Euro gained +0.30% as both the two & ten-year German yields rose 3 basis points respectively. European equity benchmarks also gained with the Euro Stoxx 600 gaining +0.70%, as did the DAX30 +0.61%. Euro-zone inflation data was also released overnight with prices rising 2.0% as forecast year-on-year for February. The driver behind these gains largely remains higher energy prices, which are a temporary effect that does not tell the full story. Core consumer prices remained stable at 0.9% as forecast over the same period, well below the ECB’s target of just below 2%. Overall the data is in line with recent trends in the Euro-zone showing the economy remains stable but lacks signs of sustained pickup in momentum.

Locally the Australian dollar dropped -0.39% following slightly weaker than anticipated employment data. Month-on-month for February on a seasonally adjusted basis employment fell by 6,400 and the number of unemployed rose 26,000 resulting in an uptick in the unemployment rate to 5.9% from 5.7% previously. An encouraging sign more full-time jobs have been added recently with full-time employment rising 27,100 while part-time work declined 33,500.

Still month-to-month these figures can be volatile, so it’s important to look at the longer-term trend. Over the prior twelve months 122,000 part-time jobs have been added while full-time employment has decreased by 21,200. The gap between the full and part-time work has narrowed recently which is encouraging, however the underemployment rate remains at this historically high level of 8.6% shown on the first chart below. The high reading coupled with the divergence from changes in the headline unemployment rate highlights the slack that remains within the labour market. This slack is likely to continue to weigh on wage growth and keep inflation subdued, and therefore the RBA will maintain a neutral stance on interest rates in the coming months.

The ASX200 index swung between gains and losses before closing +0.2% higher although we expect a slightly softer start to trading this morning with ASX SPI200 futures down 8 points in overnight trading. If you’re interested in trading global markets and still need practice, click here to open a free $100,000 Rivkin Trader account. 

Data releases:

·         Euro-zone Trade Balance (MoM Jan) 9:00pm AEDT

·         Euro-zone Construction Output (Mom & YoY Jan) 9;00pm AEDT

·         U.S. Industrial Production (MoM Feb) 12:15am AEDT

·         University of Michigan Consumer Confidence (MoM Mar) 1:00am AEDT

Chart 1 – Australian Unemployment & Underemployment Rates

Source: ABS

To view the Rivkin economic calendar and Local Markets matrix, members can click here.

This article was written by James Woods - Global Investment Analyst, Rivkin Securities Pty Ltd. Enquiries can be made via james.woods@rivkin.com.au or by phoning +612 8302 3631.

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