St George Economics economy and finance update

Share Markets: 

The key US share market indices rose overnight, helped by a Wall Street Journal article. 

This article suggested the Fed will reassure investors that policymakers won't be quick to raise interest rates at next week's meeting of the Federal Reserve Open Market Committee. 

The Dow Jones and S&P 500 finished up 0.1% and 0.3% higher, respectively.


US 10-year Treasury bond yields were largely range-bound overnight between 2.57% and 2.63%. 

Yields dropped late in the session, spurred lower by the Wall Street Journal article (see US section below).

Australian 3-year government bonds yields nudged slightly higher during the London morning, from 2.70% to 2.74%, but then retraced these gains. 

The Australian 10-year bond yield rose from 3.77% to 3.82% and then consolidated.

Foreign Exchange: 

The US dollar index resumed its three-week old decline overnight. EUR/USD rose from a London morning low of 1.3166 to a one-month high of 1.3296.  USD/JPY fell from 100.05 to around 98.90.

Amid a broad-based USD decline, AUD/USD rose from near 0.9130 to 0.9280.  However, the AUD continued to underperform on the cross exchange rates, as evidenced by the move in AUD/NZD overnight. 

Over the past 24 hours, AUD/NZD has moved one-and-a-half big figures lower (ie from around 1.1550 to a low of 1.1397). The New Zealand dollar extended its gains, after a surprising hawkish shift from the RBNZ yesterday.


Crude prices rose after data on durable goods orders suggested US economic activity is accelerating.  Gold also gained for the first time in three days.


There was no major economic data released overnight.

Europe:  German business confidence rose for a third month in July, indicating that Germany's economy is in recovery. 

The Ifo institute's business climate index, based on a survey of 7,000 executives, rose to 106.2 from 105.9 in June.

Lending to companies and households in the Eurozone fell by 1.6% in June from a year earlier. 

That's the biggest fall on record in June in a sign the region is still struggling to shake-off the longest-ever recession. 

United Kingdom: 

GDP expanded by 0.6% in the June quarter, lifting the annual growth rate from 0.3% to 1.4%.  All main industries showed expansion, which is the first time this has occurred in three years.

In a separate report, the statistics office said services grew by 0.2% in May and increased 1.5% from a year earlier.

United States:  Data overnight suggested that factory activity is regaining some momentum after hitting a soft patch earlier this year. 

Orders for durable goods rose by 4.2% in June, much more than consensus forecast.  Autos and aircraft orders drove the rose in the month.  There were also signs of strength in other categories.

In addition, unfilled orders recorded their largest gain since December 2007. 

Even more encouraging, order books for core capital goods rose a solid 1.7% in June.

Non-defence capital goods orders excluding aircraft, a closely watched proxy for business spending plans, increased by 0.7% in June.  It suggests an increase in investment spending as we move into the third quarter.

The one bit of data that was somewhat weak in this report was shipments of core capital goods, which is used to calculate equipment & software spending in the GDP report (accounts for 9% of GDP).  It fell 0.9% in the month, after a 1.9% rise in May. 

It adds to the view that GDP in Q2 has slowed from its pace in Q1.

A separate report showed more people filed for unemployment benefits last week.  Jobless claims rose by 7k to 343k in the period ending July 20.  But the numbers remained within a range that suggests the labour market's recovery is on track. 

Furthermore, volatility linked to annual auto plant shutdowns was likely distorting the picture for jobless claims in July.

Manufacturing activity in the tenth district, Kansas, rose to plus 6 in July from minus 5 in the previous month.

Wall Street Journal's Hilsenrath said in an article overnight that the Fed is likely to keep its US$85bn/month asset-purchase program on track at the next FOMC meeting on July 30-31st. 

Hilsenrath also said that the Fed may look to revise "forward guidance" or Fed intentions over the next few years. 

Please read the disclaimer below:

The information contained in this report (the Information) is provided for, and is only to be used by, persons in Australia. The information may not comply with the laws of another jurisdiction. The Information is general in nature and does not take into account the particular investment objectives or financial situation of any potential reader. It does not constitute, and should not be relied on as, financial or investment advice or recommendations (expressed or implied) and is not an invitation to take up securities or other financial products or services. No decision should be made on the basis of the Information without first seeking expert financial advice. For persons with whom St.George has a contract to supply Information, the supply of the Information is made under that contract and St.George's agreed terms of supply apply. St.George does not represent or guarantee that the Information is accurate or free from errors or omissions and St.George disclaims any duty of care in relation to the Information and liability for any reliance on investment decisions made using the Information. The Information is subject to change. Terms, conditions and any fees apply to St. George products and details are available. St.George or its officers, agents or employees (including persons involved in preparation of the Information) may have financial interests in the markets discussed in the Information. St.George owns copyright in the Information unless otherwise indicated. The Information should not be reproduced, distributed, linked or transmitted without the written consent of St.George.

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