Greece, China and low confidence hit the economy hard


The AiG Performance of Services index improved to 51.2 in June from 49.6 in May. The lift is an encouraging sign for the services sector.

Low interest rates are aiding areas of consumer spending.  

However, weak consumer confidence and income growth are restraining expenditure. 

Additionally, business-oriented services are being impacted by weakness in business confidence and the economic outlook.

Retail sales grew just 0.3% in May. Although not far from our expectations, it was disappointing given the spending boost from rate cut from the RBA and some relief after the Federal Budget was announced. 

Further, the modest growth in May followed a small contraction in April. Retail spending has softened in the second quarter, after a promising start to the year. 

Weak income growth is providing a constraint on consumer spending. 

The upswing in the housing market is helping to boost spending in goods related to home improvements. 

Household good retailing was the strongest category in the month and in the year.


On Sunday, 62% Greeks voted "no" to creditors' proposals, with 85% of votes counted. Financial markets have reacted in a risk adverse manner.

This significantly raises the risk of a Greek exit from the Euro. The ECB is meeting today to discuss emergency lending to Greek banks.

Germany's Merkel and France's Hollande will meet today to discuss Greece and have called a summit of European leaders on Tuesday.

Markets will be closely watching the response from Merkel and other European leaders.

Share Markets:

The US stockmarket was closed for the Independence Day holiday.

European stocks weakened on nervousness ahead of the Greek vote.

The Euro Stoxx index fell 0.6%. Global stockmarkets will weaken further in reaction to the Greek vote.

The Shanghai Composite remained under pressure, falling 5.77% for a total loss of 30% since mid-June. China has rolled out measures over the weekend in an attempt to halt the stockmarket slide.

Initial public share offers have been suspended. Major brokerages have vowed collectively to buy at least 120bn yuan (US$19bn) worth of shares and not to sell as long as the Shanghai Composite Index is below 4500 points.

Additionally, 94 Chinese mutual funds announced they would also put money into stocks.

Interest Rates: 

The US bond market was closed on Friday, although the 10-year Treasury yield implied by futures fell 3 basis points.

German 10-year Bund yields fell 5 basis points to 0.79%, with nervousness regarding the Greek vote driving safe haven flows.

This move away from peripheral European debt and into safe havens is expected accelerate tonight.

Foreign Exchange:

The US dollar index rose sharply on safe haven flows following the Greek "no" vote.

The Euro opened weaker this morning, with EUR/USD falling from 1.1116 at Saturday's close to trade at 1.0980 at the time of writing.

The Yen gained against the major currencies on risk aversion, with USD/JPY falling from 123.18 to trade at 122.30 at the time of writing.

The Aussie dollar was the underperformer, falling against the major currencies, including the Euro.

Safe haven flows, given the Greek vote, and the weaker iron ore price, weighed on the local currency. AUD/USD fell to a six-year low of 0.7452 earlier this morning and is currently trading at 0.7477.

AUD/EUR fell from 0.6896 to 0.6793 at the time of writing.

The Aussie dollar weakened against the New Zealand dollar, falling from 1.1370 to 1.1213 currently.

Commodities: The iron ore price weakened further, falling to US$55.26 per ton, its lowest since April, on expectations of increased supply as demand from China's steel industry slows.


The HSBC services PMI fell to 51.8 in June from 53.5 in May. Despite slowing to a five-month low, the reading indicates a continued expansion in the services sector.

June was the eleventh consecutive month of readings above 50.

A slower expansion in services leaves open the possibility that authorities will cut interest rates further.


Eurozone retail sales rose 0.2% in May, slightly beating the 0.1% consensus estimate. Services PMI matched consensus.

United States:

There were no data releases due to the US holiday.

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