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St George Economics economy and finance update

Share Markets:

Equity markets in Europe and the US were weaker over the weekend as investors continue to weigh up the pace of US economic growth and the possible impact on earnings of any reduction in the pace of monetary stimulus.

Sentiment remains fragile and volatile.

The Dow ended its session down 0.8%. In Europe, the FTSE 100 fell 0.4% as did the Dax.

Bonds:

Bond markets saw little movement in yields by the end of their session. US long bond yields rose one basis point to 2.49% while ten-year German bonds were unchanged at 1.73%.

US two-year yields remained unchanged at 0.36%.

Foreign Exchange: 

The USD gained ground on the majors on Friday on expectations of better economic growth and a tapering of monetary stimulus.

The AUD moved lower against the NZD and the majors, most likely on concerns over slower growth in China following a desire by the Chinese monetary authorities to restrict the pace of credit growth in the economy.

Commodities:

The price of gold lifted from a 34-month low on signs of increased physical demand for coins, jewellery and bars.

The price of copper was assisted by better news on the Japanese economy while the price of oil edged higher as the USD firmed.

Australia:

Private sector credit had another month of subdued growth, rising 0.3% in May.

Annual growth stepped down from 3.1% to 3.0% in the year to May, and remains at a modest pace, particularly given interest rates are at historically low levels. 

The pace of credit growth continues to indicate an unwillingness to increase leverage across both businesses and households.

Europe:

German real retail sales rose 0.8% in May, their first rise since the volatile Christmas-new year sales period, for a 0.4% annual pace of gain.

In June, the preliminary CPI accelerated from an annual pace of 1.5% to 1.8%.

Japan:

The jobless rate held steady at 4.1% in May, while the jobs-to-applicants ratio (the availability of jobs) rose to the highest in since June 2008, and corresponds to an improvement in the Japanese economy.

Industrial production rose 2.0% in May, the fourth consecutive monthly rise, indicating that the weaker yen is underpinning a pickup in economic activity.

The annual rate of growth remains in decline falling 1.0% in the year to May, although an improvement from the 3.4% annual decline in April.

In other data, retail sales jumped 1.5% in May, after a 0.6% rise in April. The annual rate of growth was just 0.8% in the year to May, but an improvement on the revised -0.2% annual growth in April.

Housing starts rose 14.5% in the year to May, the ninth straight month of positive growth. This adds to the range of indicators that demand is picking up.

Japan remains in deflation according to national CPI data. On an annual basis, national CPI fell 0.3% in the year to May, although the rate of decline has slowed from 0.7% in the year to April.

A silver lining was that excluding fresh food, prices were flat in the year to May, although excluding fresh food and energy, prices declined 0.4% over the same period.

The data continue to suggest that the Bank of Japan (BoJ) remains far from its inflation target of 2 percent, but the improvement in indicators for demand has been encouraging for Japan.

New Zealand:

Building permits rose 1.3% in May following a revised 21.0% surge in April. The annual rate of growth was 30.5% in the year to May, and the total value of building consents was the highest since 2007.

The strong growth in part reflects rebuilding in earthquake-affected areas, but the Reserve Bank of New Zealand (RBNZ) has expressed concern that the housing market is becoming overheated.

United Kingdom:

UK consumer confidence improved slightly in June from -22 to -21, the equal highest reading since late 2010, matching the Royal Wedding spike to -21 in May 2011.

The latest gain was driven by the major item purchase and economic outlook components. The survey cut off was June 16, before the latest public spending cut announcement and post FOMC stock market sell-off.

The Nationwide reported house prices accelerating to 1.9% yr in June, also the highest since 2010.

United States: 

The US Chicago PMI fell from 58.7 to 51.6 in June, continuing the series of large swings that have characterised this series this year.

The recent range has been 49-59, in contrast to last year's gradual loss of altitude from 62 to 50.  Coincidentally the lesser watched Milwaukee NAPM rose from 40.7 to 51.6 in June.

The US University of Michigan consumer sentiment index was revised up from 82.7 to 84.1 in the final June reading but this still represents a modest slippage from 84.5 in May.

Please read the disclaimer below:

The information contained in this report (the Information) is provided for, and is only to be used by, persons in Australia. The information may not comply with the laws of another jurisdiction. The Information is general in nature and does not take into account the particular investment objectives or financial situation of any potential reader. It does not constitute, and should not be relied on as, financial or investment advice or recommendations (expressed or implied) and is not an invitation to take up securities or other financial products or services. No decision should be made on the basis of the Information without first seeking expert financial advice. For persons with whom St.George has a contract to supply Information, the supply of the Information is made under that contract and St.George's agreed terms of supply apply. St.George does not represent or guarantee that the Information is accurate or free from errors or omissions and St.George disclaims any duty of care in relation to the Information and liability for any reliance on investment decisions made using the Information. The Information is subject to change. Terms, conditions and any fees apply to St. George products and details are available. St.George or its officers, agents or employees (including persons involved in preparation of the Information) may have financial interests in the markets discussed in the Information. St.George owns copyright in the Information unless otherwise indicated. The Information should not be reproduced, distributed, linked or transmitted without the written consent of St.George.

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