St George Economics economy and finance update
The prospect of the Federal Reserve scaling back monetary stimulus continued to weigh on financial markets.
Further, the run of more positive US economic data further fuelled speculation that the end of quantitative easing from the Fed was ahead.
Share markets across the globe fell sharply, with the S&P500 in the US recording its biggest daily decline since 2011, ending down 2.5%. The Dow fell 2.3%, and the Nasdaq dropped 2.3%. In Australia yesterday, the ASX200 fell 2.1%, and looks set for further losses today.
US treasuries continued to be sold off (yields rose), on the growing possibility that the Fed would reduce its bond purchases. Yields on 10-year treasury notes rose to its highest since 2011.
Concerns have also arisen in China's short-term money market, where money market rates yesterday rose to record highs.
The People's Bank of China (PBoC) have injected CNY50bn liquidity, but is reportedly hoping to stamp out what it sees as irresponsible lending by banks. This would suggest that it will provide limited relief to money markets.
The US dollar extended its gains against most major currencies. The Aussie continued its slide, facing downward pressure from both the growing possibility the Fed will wind down monetary stimulus, and growing concerns in China.
AUD fell to as low as 0.9164 last night, and has since stabilised to around 0.92.
Commodity prices fell sharply, weighed down by softer-than-expected Chinese economic data. The broad CRB index fell nearly 3 percent.
Gold prices slumped around 5 percent, on the growing prospect of an unwinding of Fed stimulus.
The breakdown of employment by industry revealed that the most jobs in the year to the May quarter were created in retail trade (47.1k), followed by healthcare & social assistance (42.0k) and accommodation & food services (39.0k).
The largest net job losses in the year were in agriculture, forestry & fishing (-33.7k) and rental hiring & real estate (-21.3k).
The Westpac- ACCI industrial trends actual composite index rose from 46.5 in the March quarter to 51.7 in the June quarter.
This provides a positive sign that conditions in the manufacturing sector are improving, supported by a weaker Australian dollar and a recovery in housing construction.
The HSBC manufacturing PMI fell to 48.3 in flash estimate for June following a reading of 49.2 in May. The decline provides some further downside risk to growth forecasts for China in 2013 - the IMF expects growth of 7.75% in 2013 (consensus 7.8%).
While the loss of momentum in activity points to softer growth than previously expected, the index is not yet indicating a substantial weakening in growth that should trouble authorities.
The euro zone composite PMI rose from 47.7 to 48.9 in June advance report, its strongest reading since the end of Q1 last year, although remaining below 50 signalling contraction. The gain was led by services, although the factory index also rose.
The New Zealand economy grew by just 0.3% in the March quarter 2013, but followed a 1.5% surge in the December quarter 2012.
Construction activity has been boosted on rebuilding from the earthquake offset by a fall in agricultural production as drought conditions have weighed on New Zealand's dairy industry.
The annual rate of growth edged down from a revised 3.2% to 2.4% in the year to the March quarter.
UK retail sales rose 2.1% in May, after falls in March-April, led higher by food and online sales.
In other data, the CBI industrial trends survey for June improved from -20 to -18, but is still in a downtrend since mid 2011.
The Philadelphia Fed factory index jumped from -5.2 to +12.5 in June, the highest in more than two years. The detail showed strong orders, shipments and jobs.
Recent signs on US manufacturing have been mixed, but this improvement, along with a pick up in the New York index provides a promising sign for June.
US existing home sales rose 4.2% in May, hitting a new cycle high, although still down 29% from the 2005 sales pace record.
The US leading index rose 0.1% in May, with only three of the ten components rising, after a 0.8% April rise when seven of the ten components were higher.
US initial jobless claims rose from 336k to 354k in the week ending 15 June, and continuing to be indicative of a slower pace of layoffs.
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