St George Economics economy and finance update

Share Markets: 

Little news saw most equity markets flat overnight, although the rally in US share markets over the past month was due for a breather.

Investors are looking for the next clues for when the US Federal Reserve would start tapering its asset purchases. Tonight attention will shift to US retail sales.

Shares in China and in Australia however gained yesterday, continuing to be bolstered by positive Chinese data released last Friday.

Bonds: 

US treasuries fell (yields rose) slightly, but remained in a tight trading range.

There was little reaction to the US federal budget which revealed a larger deficit. Investors are likely waiting for a clearer picture on Federal Reserve purchases and the outlook for interest rates, which remain the major short-term driver for US government bonds.

Foreign Exchange:

The US dollar gained against most currencies with the dollar index recovering from the lows witnessed earlier this week. The Japanese yen weakened following a weaker-than-expected GDP report yesterday.

The Australian dollar fell to around 91.4 US cents after briefly touching above 92 US cents yesterday.

However, AUD has continued to hold onto most of the gains since the more positive economic data from China released last week.

Commodities:

Most commodity prices rose with the broad CRB index rising nearly 1 percent. Oil prices were supported by concerns over supply disruptions in Libya.

Copper however fell, although this followed four sessions of consecutive gains. Gold prices rose to their highest in three weeks, despite the US dollar strengthening.

Australia:

Lending finance data yesterday indicated commercial lending continues to strengthen.

Commercial lending has increased for five consecutive months and in trend terms rose 2.7% in June. For the year to June, commercial lending has gained 8.6%, the highest annual growth rate since October 2011.

Japan:

GDP was softer than expected, rising 0.6% in Q2, following on from a downwardly revised increase of 0.9% in Q1 (previously reported as 1.0%).

Consumer spending was a key driver of economic growth in Q2, while inventories detracted from growth, as did residential investment. 

Japan's Prime Minister Abe is looking to raise the national sales tax rate in coming months and economic data will be closely watched to ascertain if the Japanese economy is robust enough to withstand the increase in sales tax.

Industrial production fell 3.1% in June, after falling 3.3% in May. For the year to June, industrial production is down 4.6%, an improvement from the 4.8% decline in the year to May.

United States:

The US Federal budget deficit was $97.6bn in July up from $69.6bn last year.

Receipts were up 8% in the year, but outlays 17% were higher.

That said, the year to date deficit of $607bn in 2013 compares to $974bn in 2012 over the same period last year, in part reflecting spending cuts (sequester).

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