March rate rise more than likely: Economy round-up

Market watchers now believe it is overwhelmingly likely that interest rates will rise in March after the release of jobs figures yesterday showing the unemployment rate has fallen to 4.1%.

Markets have now priced in an 85% likelihood that rates will rise when the Reserve Bank of Australia meets on 4 March, up from 74% before the release of the jobs data and 30% late last week, according to Bloomberg.

Australian markets have opened lower this morning on a weak lead from the US, with the S&P/ASX200 down 1.7% on yesterday’s close to 5588.2 at 12.15pm.

The US Dow Jones Index dropped 1.4% to 12376.98 overnight on comments by US Federal Reserve Chairman Ben Bernanke that the economic woes being experienced there still have some way to run.

“The outlook for the economy has worsened in recent months, and the downside risks to growth have increased,” Bernanke told the US Senate Banking Committee. “Further cuts in homebuilding and in related activities are likely.”

The comments followed further bad news from the investment banking sector, with Swiss bank UBS announcing $US13.7 billion write down in the value of its sub-prime connected assets.

There was one rather unexpected ray of sunlight for the US economy, however – the retail sector recorded a 0.3% increase in sales in January to $US382.9 billion, defying market expectations of a 0.4% fall.