St George Economics economy and finance update

Share Markets:

Sentiment improved for another session, supported by reassuring comments from Fed officials.

NY Fed president Dudley said that the pace of Fed's bond buying would depend on the economic outlook, which remained unclear, while there were similar comments from Atlanta Fed president Lockhart.

The S&P500 rose 0.6%, and the Dow and Nasdaq lifted 0.8%.


US treasuries rose (yields fell) following the efforts to talk down the Fed's plan to taper asset purchases.

Yields on 10-year notes have edged below recent highs of 2.67, but remain well above the levels before Bernanke spoke last week.

Foreign Exchange: 

The US dollar fell marginally against the euro but strengthened against the yen on easing expectations that the Fed would scale back purchases.

The Australian dollar continued to stabilise around 0.93, supported by the recovery in sentiment.


Commodity prices were generally supported by expectations global monetary stimulus measures will remain, with the exception of gold, where prices continued to slide.

Gold prices fell to below $1200 an ounce for the first time in three years. Oil and copper prices were both higher.


Kevin Rudd was sworn in as Australia's 28th Prime Minister yesterday. The Deputy Prime Minster is now Anthony Albanese while Chris Bowen has replaced Wayne Swan as Treasurer.

Job vacancies in Australia declined 7.3% in the three months to May. Vacancies have fallen for the past three quarters and currently stand at 138.9k.

According to the ABS there were 686.5k people unemployed in May.


Industrial profits in China rose 12.3% over the 12 months to May. This was an improvement on the 11.4% growth seen in the year to April.


The business climate index improved marginally from -0.75 to 0-.68 in June, just shy of the high for the year so far of -0.67 in February.

Readings Meanwhile the economic confidence index rose from 89.5 to 91.3 in June, its highest since May last year.

Money supply M3 growth slowed from an annual pace of 3.2% to 2.9% in May, continuing to slow in part due to repayments from the ECB's LTRO scheme introduced at the height of the debt crisis.

Private sector loan growth decelerated from an annual rate of -0.9% to -1.1% in May, with household credit barely growing at 0.2% in the year to May but business credit was down -3.1% in the year to May.

German unemployment fell 12k in June after rising 34k in the previous three months.

Looking through the volatility, in H1 2013, unemployment rose just 8k, compared to 49k in H2 2012 and just 6k in H1 2012.

That corresponds with the temporary slump in the German economy at the end of 2012, which has yet to be materially reversed although it recorded soft 0.1% GDP quarterly growth in Q1.

New Zealand:

The NZ trade balance narrowed in May to a surplus of NZD 71million.

Exports were stronger than the previous month as were imports.

Over the 12 months to May, New Zealand had a trade deficit of NZD 869 million. Business confidence rose from 41.8 to 50.1 in June while the outlook for activity improved from 34.3 to 45.0.

United Kingdom:

UK GDP growth was unrevised at 0.3% in the final Q1 estimate. Business investment measured separately to the national accounts was revised from -0.4% to -1.9% in Q1, following -0.8% in Q4, the first back to back declines in two years.

The current account deficit widened from -£13.6bn to -£14.5bn in Q1.

United States:

NY Federal Reserve President Bill Dudley said that commentary expecting Fed tightening earlier than previously thought was "quite out of sync with both FOMC statements and the expectations of most FOMC participants."

The core PCE deflator was up 0.1% in May, taking the annual rate steady at 1.1% in the year to May, indicating price pressures remain subdued.

Personal income rose 0.5%, with a 0.3% gain in wages and salaries supplemented by other income growth.

That lifted the savings rate to 3.2%, the highest for the year so far.

US initial jobless claims fell 9k to 346k in the week ending 22 June, claims have fallen from a weekly average in much of H2 2012 around 370k to 350k so far this year, indicative of a slower pace of employee layoffs in 2013.

US pending home sales jumped 6.7% in May, to be up 12.5% in the year, further confirming that the housing market upswing is underway.

The Kansas City Fed factory index fell from 2 to -5 in June, its eighth sub zero reading in nine months, and contrasting with the mostly stronger June readings from the other regional Fed factory surveys.

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