Services sector contracts again: Midday Roundup

The Australian Industry Group/Commonwealth Bank Australian Performance of Services Index recorded its fifth consecutive fall for March, with the high Australian dollar and patchy economy conditions hitting the sector hard.

“Trade exposed businesses in the services sector are feeling the competitiveness pinch of the persistently high (Australian) dollar,” Australian Industry Group chief executive Heather Ridout says.

“The sector is clearly vulnerable to the risk of higher interest rates or Federal budget measures that would further slow the recovery in private sector demand.”

Retail trade, transport and storage sub-sectors were weaker for the month, the survey found.

Australian market continues solid run

The Australian sharemarket has shrugged off a flat start to trade slightly higher at midday, defying mixed offshore leads and a slow trading day on Wall Street.

The market is awaiting the Reserve Bank’s interest rates decision this afternoon, with most economists tipping it will keep rates steady at 4.75%.

At just after midday, the benchmark S&P/ASX200 index was up 0.19% to 4859.9, while the broader All Ordinaries index had lifted 0.19% to 4896.3.

Oil prices rose to their highest levels since 2008 last night, with Brent crude reaching $US121 a barrel on continued geopolitical concerns, but this did not help oil giant Woodside, which fell as speculation faded that it might be taken over by BHP Billiton.

The market had a solid start to the week yesterday, with the benchmark S&P/ASX200 index closing 0.51% higher at 4,886.8 points, while the broader All Ordinaries index grew 0.61% to 4,984.7 points.

Australian dollar draws breath after record week

The Australian dollar, meanwhile, was weaker on Tuesday, below the 104 US cent mark, after reaching a new post-float high of 104.22 US cents on Monday morning.

Westpac senior market strategist Imre Speizer says all risky currencies have dropped over the past day or so, AAP reports.

At 11.52 AEST, it was trading at 103.25 US cents.

Investors eye earnings season in US

Overnight, Wall Street was flat as investors eyed the earnings season and drew breath after strong labour figures helped the S&P reach its best-week period since December on Friday.

The Dow Jones industrial average lifted 23.31 points, or 0.19% cent, to close at 12,400.03. The Standard & Poor’s 500 Index grew 0.03% to 1,332.87m while the Nasdaq Composite Index was 0.01% lower at 2,789.19.

“Volume has dried up here as investors and traders are sitting on their positions to see what happens in the upcoming earnings season,” Tim Ghriskey, chief investment officer of Solaris Asset Management in New York, told Reuters.

US Federal Reserve chairman Ben Bernanke overnight also poured cold water on the prospect of sustained inflation growth in the US, putting the recent rise down to hot commodity prices worldwide.

“I think the increase in inflation will be transitory,” Bernanke said, leaving investors to speculate further on whether the bank would continue with its controversial stimulus program.

Trade deficit surprises on the downside

In late morning news, trade deficit figures have surprised the market, recording the first deficit for more than a year, versus expectations of a $1 billion-plus surplus.

Australia recorded its first trade deficit in more than a year, with Bureau of Statistics figures showing the balance of goods and services in February was a $205 million deficit, versus the revised $1.433 billion surplus the previous month.

Exports fell by 2% over the month, while imports lifted 5%, the ABS said, with flooding on the eastern seaboard believed to have played a significant role.