St George Economics economy and finance update

Share Markets:

A strange session overnight. Statistics on European manufacturing improved yet the market fell while manufacturing statistics in the US worsened but the market rose.

Could it be that liquidity rather the underlying earnings is driving sentiment? 

The weak US statistics suggest more 'easy money' for longer, while if Europe is improving, that may limit further monetary accommodation. 

The FTSE fell 0.9% and the Dax was down 0.8%. 

In the US, the Dow rose 0.9% while the S&P 500 was up 0.6%.

Bonds:

There was little net movement in bond yields overnight.

The US long bonds edged two points higher to 2.13% while ten year German bonds currently yield 1.51%.

Foreign Exchange: 

The US dollar index fell by around 1.0% to a 4-week low following the US data, boosting most of the majors.

The AUD pushed higher against the USD moving back into the US 97 cent range and moved higher against all the majors overnight but was little moved against the NZD by the start of trade.

Commodities: 

The price of oil rose overnight as the USD weakened. Continued growth in the Chinese non-manufacturing sector  combined with potential restrictions on supply out of Indonesia's Grasburg mine saw copper prices rise.

Gold also rose on the weaker USD.

Australia:

The RBA will announce its latest position on the cash rate today at 2.30 pm. We expect the RBA to remain on hold given the data flow over the past month.

Retail sales rose 0.2% in April, which was slightly below our own and consensus expectations for a 0.3% increase.

In the first four months of this year, retail sales have averaged 0.6% growth, compared to an average 0.1% decline in retail sales in the last six months of 2012.  For the year to April, retail sales remained at 3.1%.

Company profits were stronger than expected, rising 3.0% in the March quarter, the largest quarterly increase since September 2011.

This was driven by a 9.5% surge in mining profits, boosted by a rise in commodity prices over the quarter.

Company profits in the non-mining sector were also stronger, rising 0.4% for the quarter.

For the year to the March quarter company profits are down 0.2%, an improvement on the -7.5% annual rate in the year to the December quarter.

Inventories fell 0.6% in the March quarter, which follows on from a small increase in the December quarter last year.

This suggests that inventories will detract 0.4 percentage points from GDP growth for the March quarter.

RP Data-Rismark dwelling prices fell 1.2% in May, after falling 0.5% in April.

Despite the declines in dwelling prices in the past two months, they have still increased since the start of this year and are up 2.9% in the year to May.

ANZ job ads were disappointing falling 2.4% in May, after falling a downwardly revised 1.7% in April (previously reported as a 1.3% decline).

For the year to May, ANZ job ads are down 18.5%, a small deterioration from the -18.3% annual rate in the year to April. 

The TD-MI inflation gauge rose 0.2% in May, after rising 0.3% in April. This saw the annual rate of inflation lift to 2.2% in the year to May, from 2.1% in the year to April.

The AiG performance of manufacturing index rose to 43.8 in May, from 36.7 in April, however, the reading remains below 50, indicating activity in the manufacturing sector is still contracting, although at a less rapid pace.

China:

The non-manufacturing PMI eased slightly to 54.3 in May, from 54.5 in April. The reading remains comfortably above 50, indicating expansion in non-manufacturing activity.

The HSBC manufacturing PMI was weaker than expected, falling to 49.2 in May, from 50.4 in April.

Europe:

The final releases for the May Eurozone manufacturing PMIs were generally all revised higher.

France was revised up to 46.4 from 45.5, Germany from 49.0 to 49.4 while the first readings for Italy (47.3 from 45.5) and the UK (51.3 from 50.23) all showed improvement from the previous month.

The improvement resulted in the Eurozone-wide number being revised up to 48.3 from 47.8.

In general, a positive set of results with improvements in the periphery led by new orders and a reversal of the past two months declines in Germany.

Japan:

Capital spending was not as poor as expected, falling 3.9% in Q1, following on from a decline of 8.7% in Q4 last year.

United States: 

US ISM manufacturing bucked the European trend, surprising on the downside and falling back below 50 for the first time since last November.

The headline slipped to 49 in May from 50.7 versus market expectations of a modest rise to 51.0.

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