St George Economics economy and finance update

Share Markets:

Better than expected statistics, associated with the manufacturing sectors in Europe and the US, saw equity markets pick up overnight.

The Dow rose 0.4% while in Europe the FTSE rose 1.5% and the Dax was up 0.3%.


There was little movement in bond yields overnight.  Both US and German ten year bond yields declined one basis point to 2.48% and 1.72% respectively.

In Australia, both three and ten year bond yields rose six basis points to 3.82% and 2.81% respectively.

Foreign Exchange: 

The USD softened against the major currencies and the AUD overnight. A modest improvement in US manufacturing numbers suggested that it will be many months before the US begins tapering its monetary stimulus.


Copper prices rebounded overnight on the belief that demand from the US will increase.

The US is the world's second largest consumer of copper after China.

The price of gold nudged higher following it slump last week and the price of oil also moved higher as expected demand from the US increased.


Dwelling prices, across the eight capital cities of Australia, rose 1.9% in the month of June to be up 3.8% on a year earlier according to RP Data-Rismark. 

For the year to June, prices rose most in Darwin (6.1%) and Perth (6.0%). In Melbourne, over the year to June, prices were up 3.4%, Sydney 5.6%, Brisbane 0.6%, Canberra 1.1% and in Adelaide they were up 0.2%. Dwelling prices fell 1.8% in Hobart over the year to June.

The AIG Performance of Manufacturing index jumped from 43.8 to 49.6 in June suggesting an improvement in business conditions. 

The production sub-component pushed up to 50.2, a marked improvement on the 33.1 reported in April.

The TD-Securities / Melbourne Institute monthly measure of inflation was flat in June and rose 2.4% over the year.

The official ABS measure of inflation is due to be released on 24th July.


China's manufacturing PMI (constructed by the National Bureau of Statistics) fell from 50.8 in May to 50.1 in June.

At the same time the HSBC Manufacturing PMI fell from 49.2 to 48.2. 

While grow is still occurring, it remains relatively subdued. The RBA has commented in the past that readings of 50 usually correlate well with trend growth, which is currently around 7%, while readings a little below 50 correlate with sub-trend growth.


The euro zone jobless rate edged up to 12.1% in May, a new cycle high following a downward revision from 12.2% to 12.0% in April.

The flash estimate of the June CPI rose from an annual rate for 1.4% to 1.6% but the core rate was steady at May's 1.2% annual pace.

The euro zone June factory PMI was revised up from the 48.7 advance reading to 48.8, still contractionary but the highest since February last year.


The outlook of large manufacturers in Japan has improved markedly with the Tankan index rising from -8 in March to 4 in June.

The outcome beat market expectations. Other elements of the Tankan survey also pointed to improved conditions with the non-manufacturing index rising from 9 to 12.

United Kingdom:

The UK factory PMI rose from 51.5 to 52.5 in June, its highest in nearly two years.

Mortgage approvals rose from 54.4k to 58.2k in May, their highest since 2009, although mortgage outstandings rose just £0.3bn in May.

The Hometrack house price index accelerated from an annual rate of 0.4% to 0.8%, its highest since late 2010 while consumer credit growth picked up from £0.6bn to £0.7bn in May.

United States: 

The ISM index of manufacturing rose from 49.0 to 50.9 in June, recovering a little more than May's 1.7 point slide.

Despite the rise, it was still the weakest quarterly set of ISM headline numbers since the 2009 recession.

The ISM numbers generally do not reflect the Fed's view that manufacturing is picking up and that monetary stimulus can be tapered in coming months.

Future job growth and industrial production numbers should provide more clarity.

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