Consumer sentiment up 0.2% in December: Economy Roundup

Consumer sentiment remained steady during December even after the Cup Day interest rate rise, according to the latest result from the Westpac Melbourne Institute Index of Consumer Sentiment.

Westpac economist Bill Evans says the increase of 0.2% to 111 in December is a “surprising resilient reaction” to the November rate hike, and overall is in optimistic territory.

The result also shows expectations for finance have increased, with the index measuring assessments of finances versus one year ago rose by 4.1%.

But the result also shows that consumers may not be spending for some time, with over 20% nominating “pay down debt” as the wisest form of their savings, still up from 10-12% during 2008.

Evans also points out that “the most striking result” of the index was a rise on the “Time to Buy a Dwelling Index”, up 15.8% in November.

“Although affordability remains tight, consumers may see the somewhat softer market conditions and flattening out in house prices over the last six months as an opportunity for buyers. The result suggests housing markets are well-placed to absorb the last month’s interest rate move.”

Evans expects the RBA to keep rates on hold in February, “as the RBA continues to assess the impact of its November move”.

Reserve Bank of Australia assistant governor Guy Debelle has told the Senate banking inquiry that funding pressures on banks have subsided, and that global risks to the banking system in Australia have fallen.

“This slowdown in growth on the asset side of the balance sheet has alleviated pressures on banks to increase their funding,” he said. “Over the past couple of years, credit growth has been slower than the growth in deposits for the first time since the early 1990s.”

But Debelle also pointed out that as a result of several changes in the industry, the banking system is exposed to less risk but requires more expensive funding.

The Australian Competition and Consumer Commission has now cleared the proposed $8.4 billion merger of the ASX with the Singapore Exchange.

“The ACCC found that the joint venture relationship between SGX and CXG would not alter CXA’s incentives to establish a lit trading venue in Australia and noted that SGX has no economic interest in CXG,” ACCC chairman Graeme Samuel said in a statement.

Sharemarket opens higher on strong overseas leads

The Australian sharemarket has opened higher this morning, following from solid overseas leads, especially in the United States where strong retail data has boosted confidence.

The benchmark S&P/ASX200 index was up seven points or 0.07% to 4771.4 at 12.20 AEST, while the Australian dollar dipped just below parity to US99c.

AMP shares lost 0.4% to $5.24, while Commonwealth Bank shares gained 0.5% to $50.89. Westpac rose 0.8% to $23.18 as ANZ fell 0.6% to $23.81.

Overseas, Rio Tinto has said it will invest over $US1 billion in the Canadian aluminium smelters in order to improve efficiency. The company will also provide $US300 million construction in preparation for the Kitmat smelter in British Columbia.

“If we go ahead with the full approval next year, then production will begin in 2014,” head of Montreal-based Rio Tinto Alcan Jacynthe Cot said in an interview with Reuters.

Meanwhile, The Australian Financial Review has reported that Agrium is finalising the sale of the AWB commodities trading arm to Cargill.

The publication reports that the deal is worth $350 million, and that it is in discussions to sell the business but has not revealed any of the parties involved.

Wall Street shares up on retail data

Investors have been given a boost of confidence after the Commerce Department released data showing a 0.8% increase, the fifth consecutive monthly rise.

Also, a report from the Labor Department showed that producer prices increased by 0.8% last month, above forecasts for a 0.6% rise. The economy overall grew by 2.5% in the third quarter, but analysts expect that number to rise in the fourth quarter.

“The fourth quarter is shaping up to be relatively decent, probably north of 3%,” said Moody’s Analytics senior economist Ryan Sweet told Reuters.

On Wall Street, the Dow Jones Industrial Average gained 48.74 points or 0.43% to 11,477.30.