Dredging in the Gladstone Harbour.
Dredging in the Gladstone Harbour. Brenda Strong

Australia's trade position fails to continue its good run


The run of improvement in Australia's trade position hit a speed bump. 

The trade balance swung back into deficit in April of $122mn, breaking the run of surpluses since December last year. 

Exports declined 1.5% in April, the first back-to-back fall in just over 1½ years, while imports grew by 2.2%.  April's deficit should be temporary.

With the transition from mining investment to production still underway, the trade balance should swing back to surplus in coming months.

Share Markets:

There was a mixed reaction to the ECB decision last night, suggesting that much of the announced measures were widely expected by markets (see below for more details).

Equity markets took the news positively. Shares from Europe to the US rose.

The S&P500 rose to another new record high and for the session rose 0.7%, while the Dow rose 0.6%. 


Bond markets were initially disappointed by the announcement, which saw yields on German bunds and US treasuries spike, however, yields retreated later on after the ECB President Draghi said that QE was on the cards.

US 10-year yields rose to as high as 2.64% but then ended the session down 2 basis points.

Australian bond yields (implied by futures) were also little changed.

Yields on 3-year notes lifted 1 basis point to 2.84% while yields on 10-year bonds lifted 2 basis points to 3.79%.

Foreign Exchange:

Currency markets shrugged off the ECB announcement, despite an initial knee-jerk reaction.

The euro fell against AUD and USD and temporarily hit a four-month low against USD, but then rebounded higher.

The Australian dollar also rose overnight, supported by stronger risk appetite.


Commodity prices were largely mixed after the ECB announcement. Brent oil was higher, although oil prices in the US were slightly lower.

Gold prices rallied on the ECB stimulus measures and the prospect of more to come. 

Copper prices were under pressure on concerns about a probe into Chinese financing deals.


The HSBC services PMI fell to 50.7 in May, from 51.4 in April.  Note that this is no longer a composite headline, and is just the output question. 

Business expectations fell quite heavily (down 2.7 points), while new orders and the order backlog moved modestly lower.  Input and output prices edged higher, as did employment. 

After the consistent lift in other business and consumer surveys out over the last two weeks, this is a disappointing read. 


The European Central Bank (ECB) lowered interest rates as widely expected. It reduced the main refinancing rate by 10 basis points to 0.15% and introduced a negative interest rate of -10bp for bank deposits at the ECB.

In effect, the ECB is establishing a cost for banks withholding funding from economic activity. There were also some measures to boost liquidity.

The ECB announced a €400bn targeted long term refinancing operation whereby funds will be made available to banks to lend to companies and households (excluding mortgages).

This funding is being provided on a repo basis for a fixed term.

The ECB did not announce any quantitative easing (QE) or outright asset purchases but ECB president Draghi said what was done was a "significant package" and that "we aren't finished here".

The ECB has said that it will "intensify preparatory work" in relation to the outright purchases of asset backed securities (ABS) backed by bank loans to the private sector.

The ECB is appearing laying the groundwork for QE in the future and should keep markets expectations alive for further monetary easing.

Eurozone retail sales rose 0.4% in April and have risen for four consecutive months. The annual rate of growth lifted to 2.4 in April, their fastest pace of gain since 2007.

United Kingdom:

The Bank of England (BoE) left monetary policy on hold, as expected.

House prices rose 8.7% in the year to May according to the Halifax, matching a 7-year high.

United States:

US initial jobless claims rose 8k to 312k in the week ending 31 May.

This meant for the month of May, there were the lowest claims since 2007.

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