St George Economics economy and finance update

Share Markets:

Weaker than expected economic news in the US was treated as good news by equity markets as it created the belief that US quantitative easing would continue to pour liquidity into markets.

US homes sales were relatively weak while the revenue flow at McDonalds Corporation was lower than expected.

Despite these events, markets held up and the S&P500 saw a new high established. The S&P500 rose 0.2%, the Nasdaq was up 0.4% while the Dow was flat.

Bonds: 

The relative lack of news flow saw bond yields remain stable in the US and Germany. US 10 year bond yields remain at 2.48% and German long bonds sit at 1.52%.

In Portugal, 10 year bond yields fell back to 6.4% from over 7% last week and a recent peak of over 8% at the height of their latest political crisis.

Portuguese 10 year bond yields stood at 6.4% just before its recent political crisis began.

Foreign Exchange: 

The USD softened a touch against most major currencies continuing a decline seen over the past two weeks.

This appears to be a reaction to the possible timing of any pull-back in US quantitative easing. Overnight the AUD maintained its higher afternoon level  against the USD but slipped marginally against the NZD.

Commodities:

Copper and gold markets viewed last night's data and earnings reports as prolonging monetary stimulus hence prices rose.

Oil prices however fell as the weak outcome for McDonalds and slower housing activity hinted that underlying activity and demand for oil will be weak.

Australia: 

No data of note released although a compilation of labour market indicators suggests that job growth will be modest in the months ahead.

Europe:

Portugal has avoided an early election.

President Silva has endorsed the coalition government of PM Coehlo after his "ideal solution" of a consensus pact between the coalition and the opposition socialists could not be agreed; the President backed down from his previous intention to call early elections rather than support the Coehlo coalition which was rocked by key resignations earlier in the month.

The French finance minister has expressed concerns over the health of the French economy saying that it was stagnant and in recession.

Despite this he expects growth to return in the second half of this year, even as the German Bundesbank said it expected German growth to slow in Q3 after warmer weather boosted activity in Q2.

United Kingdom:

No data released overnight but the birth of a future king this morning was well received and could well boost retail sales for July and August.

United States:

US existing home sales fell 1.2% in June, a surprising result given the 11% rise in pending home sales in the year to date (Jan to May).

Sales completions are only up 5% year to date (Jan to June) which could indicate more sales are falling through, possibly due to the higher US mortgage rates seen recently.



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