St George Economics economy and finance update
Equity markets in Europe and the US were weaker over the weekend as investors continue to weigh up the pace of US economic growth and the possible impact on earnings of any reduction in the pace of monetary stimulus.
Sentiment remains fragile and volatile.
The Dow ended its session down 0.8%. In Europe, the FTSE 100 fell 0.4% as did the Dax.
Bond markets saw little movement in yields by the end of their session. US long bond yields rose one basis point to 2.49% while ten-year German bonds were unchanged at 1.73%.
US two-year yields remained unchanged at 0.36%.
The USD gained ground on the majors on Friday on expectations of better economic growth and a tapering of monetary stimulus.
The AUD moved lower against the NZD and the majors, most likely on concerns over slower growth in China following a desire by the Chinese monetary authorities to restrict the pace of credit growth in the economy.
The price of gold lifted from a 34-month low on signs of increased physical demand for coins, jewellery and bars.
The price of copper was assisted by better news on the Japanese economy while the price of oil edged higher as the USD firmed.
Private sector credit had another month of subdued growth, rising 0.3% in May.
Annual growth stepped down from 3.1% to 3.0% in the year to May, and remains at a modest pace, particularly given interest rates are at historically low levels.
The pace of credit growth continues to indicate an unwillingness to increase leverage across both businesses and households.
German real retail sales rose 0.8% in May, their first rise since the volatile Christmas-new year sales period, for a 0.4% annual pace of gain.
In June, the preliminary CPI accelerated from an annual pace of 1.5% to 1.8%.
The jobless rate held steady at 4.1% in May, while the jobs-to-applicants ratio (the availability of jobs) rose to the highest in since June 2008, and corresponds to an improvement in the Japanese economy.
Industrial production rose 2.0% in May, the fourth consecutive monthly rise, indicating that the weaker yen is underpinning a pickup in economic activity.
The annual rate of growth remains in decline falling 1.0% in the year to May, although an improvement from the 3.4% annual decline in April.
In other data, retail sales jumped 1.5% in May, after a 0.6% rise in April. The annual rate of growth was just 0.8% in the year to May, but an improvement on the revised -0.2% annual growth in April.
Housing starts rose 14.5% in the year to May, the ninth straight month of positive growth. This adds to the range of indicators that demand is picking up.
Japan remains in deflation according to national CPI data. On an annual basis, national CPI fell 0.3% in the year to May, although the rate of decline has slowed from 0.7% in the year to April.
A silver lining was that excluding fresh food, prices were flat in the year to May, although excluding fresh food and energy, prices declined 0.4% over the same period.
The data continue to suggest that the Bank of Japan (BoJ) remains far from its inflation target of 2 percent, but the improvement in indicators for demand has been encouraging for Japan.
Building permits rose 1.3% in May following a revised 21.0% surge in April. The annual rate of growth was 30.5% in the year to May, and the total value of building consents was the highest since 2007.
The strong growth in part reflects rebuilding in earthquake-affected areas, but the Reserve Bank of New Zealand (RBNZ) has expressed concern that the housing market is becoming overheated.
UK consumer confidence improved slightly in June from -22 to -21, the equal highest reading since late 2010, matching the Royal Wedding spike to -21 in May 2011.
The latest gain was driven by the major item purchase and economic outlook components. The survey cut off was June 16, before the latest public spending cut announcement and post FOMC stock market sell-off.
The Nationwide reported house prices accelerating to 1.9% yr in June, also the highest since 2010.
The US Chicago PMI fell from 58.7 to 51.6 in June, continuing the series of large swings that have characterised this series this year.
The recent range has been 49-59, in contrast to last year's gradual loss of altitude from 62 to 50. Coincidentally the lesser watched Milwaukee NAPM rose from 40.7 to 51.6 in June.
The US University of Michigan consumer sentiment index was revised up from 82.7 to 84.1 in the final June reading but this still represents a modest slippage from 84.5 in May.
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