INCREASE PROFIT: Bundaberg region food producers are being urged to take advantage of the falling Aussie dollar.
INCREASE PROFIT: Bundaberg region food producers are being urged to take advantage of the falling Aussie dollar. Adam Creed

Exports dip but the trend heads onward and upward

Australia:

The trade balance unexpectedly slipped back into deficit of $765mn in July. It follows two consecutive months of surpluses.

Exports rose just 0.2% in July and imports lifted 4.1%.

The weakness in exports was a bit surprising, given commodity prices rose and the Australian dollar weakened in July.

Despite the disappointing headline result, there were a few bright spots. Imports rose in categories closely linked to business investment and consumption, providing a positive sign for domestic demand.

While exports were soft in the month, an upward trend remains intact. Further, we are beginning to see evidence of the weaker Australian dollar having a positive impact on exports. Service exports grew at its strongest annual pace in just over five years.

We expect that the trade balance will return to surplus in coming months.

Share Markets:

Financial market sentiment was supported by more positive US economic data, which offset the growing expectations that the Fed would begin unwinding its bond purchases program this month.

The ISM non-manufacturing index provided another sign that the US economy was improving.

However, the possibility of a military strike on Syria continued to linger and may have capped share market gains.

The Dow and S&P500 rose slightly, rising 0.04% and 0.1% respectively, while the Nasdaq rose 0.3%.

Bonds:

Yields on US treasuries rose to their highest since 2011 as the run of US economic data continued to bolster the case for the Federal Reserve to begin tapering its quantitative easing program at its next meeting in September.

Yields on 10-year bonds rose to just below 3 percent and 2-year yields rose to above 0.50 percent.

Foreign Exchange:

The US dollar rose as positive economic data boosted expectations the Fed would taper in September.

Meanwhile, dovish comments from the ECB kept the euro under pressure, which fell to a six-week low against the US dollar.

The Australian dollar weakened slightly, largely reflecting US dollar strength; however, an improving global outlook may be helping the AUD hold onto some of its recent gains. over the previous session.

A Triennial Central Bank Survey Foreign exchange turnover preliminary global report was published overnight.

The report revealed trading in foreign exchange averaged $5.3 trillion in April 2013, up from $4.0 trillion in April 2010 and $3.3 trillion in April 2007.

AUD was the 5th most traded currency in 2013, after the USD, EUR, JPY and GBP. The AUD/USD exchange rate pair was the fourth most traded.

Commodities: 

Commodity prices were mixed overnight. The growing possibility of Fed tapering and a stronger US dollar kept gold prices and other commodities under pressure.

Oil prices rose on news that US inventories dropped to their lowest in a year-and-a-half.

Global:

The G20 summit in St. Petersburg was overshadowed by great-power tensions over the Syria crisis.

Leaders signed off on a jobs and growth initiative, as well as steps to combat international tax evasion and tighten financial regulation.

But concerns persisted that renewed market turbulence from the prospect of the US reducing quantitative easing could hit developing economies hardest.

The BRICS caucus of emerging market countries pledged to create a $100 billion pool of currency reserves to guard against a balance of payments crisis, although the mechanism will take some time yet to set up.

The summit will continue tonight.

Europe:

The European Central Bank (ECB) left monetary policy on hold but President Draghi downplayed the recent run of improving economic data, and kept the door open for further easing.

Draghi said that said the ECB was ready to act as rising money-market rates threatened higher borrowing costs.

Draghi has reason to be cautious given the issues that still face the zone, including the competitiveness of major countries, unsustainable sovereign debt in the periphery, a lack of political will to proceed with banking union and fiscal transfers and a lack of support for austerity policies.

In other data, German factory orders fell 2.7% in August, their third fall in four months.

Japan:

The Bank of Japan (BoJ) left policy rates and its asset purchase program unchanged at its meeting yesterday.

United Kingdom:

The Bank of England (BoE) left its rates and asset purchase program remain on hold.

United States:

The US ISM non-manufacturing index rose from 56.0 to 58.6 in August, the highest in nearly eight years. It further provides an encouraging sign that the US economy continues to improve.

Among sub-indices, business activity, orders and jobs all posted gains.

US factory goods orders fell 2.4% in July, with the known 7% fall in durables partly offset by a 2.4% gain in the non-durables component.

US ADP private payrolls rose 176k in August, their slowest rise in three months, but keeps the recent trend of moderate job growth intact.

In other labour force indicators, initial jobless claims fell 9k to 323k in the last week of June.

Other data showed an upward revision to Q2 productivity growth from an annualised 0.9% to 2.3%, reflecting the upward revision to GDP and a downward revision to hours worked.



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