St George Economics economy and finance update

Share Markets:

While the Eastern States of Australia celebrated the Queen's Birthday long weekend, US equity markets witnessed a 1.4% surge in the Dow on Friday night followed by a minor, 0.1% retracement on Monday night.

Japan's Nikkei index followed the US up, rising 4.9% on Monday aided by solid economic growth figures (see below). 

On Friday night the FTSE rose 1.2% and then edged down 0.2% on Monday night.

Bonds:

US long bond yields have moved higher having risen from 2.08% to 2.21% in a matter of days. Australian 10 year bond yields have not followed suit and remain close to 3.30%.

German long bond yields have edged higher to 1.60%. 

Foreign Exchange: 

The AUD continues to trade lower but did pick up against the USD and the other majors on Monday night after some weakness on Friday night.

The AUD continues to trade on concerns regarding commodity prices and on the course of US monetary policy.

Commodities: 

Oil edged lower on the perception that Chinese industrial production is weakening. Chinese IP was marginally lower than the 9.3% reported in the year to April (see below). 

Gold moved up on expectations of higher Asian demand while the price of copper slipped lower.

Australia:

The AiG performance of construction index rose only marginally from 35.2 to 35.3 in May and continues to point to subdued conditions for the construction industry.

China:

China saw mixed data on Friday. Imports were down 0.3% over the year while exports rose only 1.0%.

At the same time industrial production was reported to have risen 9.2% over the year to May and consumer price inflation was held to a subdued 2.1%.

In a sign of continued economic growth, Chinese retail sales rose 12.9% in the year to May.

Europe:

German industrial production rose 1.8% in April to be up 1.0% over the year.

At the same time, Germany continues to record solid monthly trade surpluses as it's productive economy benefits from the general weakness of the euro.

Japan:

Japan's annual pace of economic growth picked up to 4.1% in the March quarter.

The pace of growth six months earlier was negative 3.6% suggesting that Japan's monetary stimulus, combined with a weaker yen, is having an impact.

United States: 

Friday night saw the US report the creation of a further 178k jobs. The US economy is recovering but is held back by its government debt burden.

When the US moves into strong recovery, its quantitative easing will taper off and bond yields are likely to move higher - with potential flow-on effects on Australian bond yields.


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