Domestic economy keeping RBA in an optimistic mood
Given the extreme volatility in share markets and escalating concerns regarding China, the RBA appeared rather upbeat in the February quarterly Statement on Monetary Policy.
The RBA's optimism rests with the domestic economy, particularly the improving labour market. The major downside risk to the outlook was China, although the RBA left its growth forecast for Australia's major trading partners unchanged from its November statement.
While we are slightly more pessimistic than the RBA on the labour market, a steady unemployment rate should still support the view for the RBA to leave rates on hold.
The AiG performance of construction index slipped slightly from 46.8 in December to 46.3 in January, further in contraction territory. Recently, residential activity has offset weakness in engineering and commercial construction.
However, home building weakened, led by the apartment construction sub-index which fell into contraction.
Retail sales were flat in December to be up 4.2% over the year.
Quarterly retail sales figures were also released.
After adjusting for inflation, retail sales rose 0.6% in the December quarter to be up 2.5% over the year. Although modest, the lift in real retail sales suggests that private consumption will make a positive contribution to the December quarter GDP figures due out in early March.
A mixed US payrolls report, disappointing earnings results from technology companies and a further decline in the oil price weighed on investor sentiment on Friday night.
The Dow fell 1.3%, the S&P 500 lost 1.9% and the Nasdaq slumped 3.3% for the session.
This followed losses in European markets and suggests the Australian stockmarket will open weaker this morning.
US government bond yields edged higher at the shorter end, as an increase in wages inflation and a fall in the US unemployment rate drove talk of US rate hikes.
Australian government bond yields (implied by futures) followed the US move, edging higher.
The US dollar strengthened against the major currencies following the payrolls data, with nascent signs of wages inflation in the US boosting talk of a rate hike from the Fed.
The Aussie dollar underperformed, weakening against the US dollar and the other major currencies.
AUD/USD fell more than one US cent, from 0.7198 on Friday morning, to currently trade around 0.7071. The Aussie dollar lost ground against the Yen, with AUD/JPY falling from 84.05 on Friday morning, to 82.63 at the time of writing.
The oil price fell further, to US$30.90 per barrel amid ongoing concerns about oversupply.
The gold price continued to gain despite the stronger US dollar and renewed talk about a Fed rate hike.
China's foreign exchange reserves fell by US$99.5bn to US$3.23tn in January.
Although this came in above consensus expectations, it was the lowest level since 2012. The decline reflects selling of dollars by China's central bank to defend the Yuan.
German factory orders fell by a larger than expected 0.7% in December, after rising 1.5% in November.
The US non-farm payrolls data was mixed, with payrolls rising by a disappointing 151k in January, while December's payroll increase was revised down to 262k (previously reported as a 292k increase).
The unemployment rate, however, which is taken from a separate survey, fell to 4.9% in January, from 5.0% in December. This was the lowest since February 2008.
Average hourly earnings rose by a stronger than expected 0.5%, compared to a monthly average of 0.2% in 2015.
The US trade deficit widened to US$43.4bn in December, from a deficit of US$42.2bn in November. Exports fell 0.3% in December to a four-year low, while imports rose 0.3%.
Consumer credit rose to US$21.3bn in December, from US$14.0bn in November.