St George Economics economy and finance update

Share Markets: 

There was little news overnight to drive sentiment, although positive Chinese trade data yesterday may have helped lift most bourses globally into positive territory.

US equity markets had a volatile session, but the Dow closed 0.2% higher, the S&P500 finished 0.4% higher and the Nasdaq dropped 0.4%.

Bonds: 

US treasuries were little changed, although rose (yields fell) slightly at the longer end. Yields on 30-year bonds touched a one-week low, as a $16bn auction drew solid demand.

This was despite comments from Fed Reserve official Fisher suggesting the Fed was on track to begin reducing its bond purchases.

Australian 3-year government bonds yields ranged between 2.51% and 2.57%, the 10year ranged between 3.66% and 3.70%.

Foreign Exchange:

The US dollar continued to slide against most currencies as markets weigh up the possibility of the Fed scaling back asset purchases.

The US dollar index fell for a fifth consecutive session, while the euro rose to its highest since mid-June against the greenback.

There was as muted reaction from the Australian dollar on soft employment data yesterday, but it rallied after surprisingly strong Chinese trade data release.

Gains in the AUD extended last night and the currency is now trading just above 91 US cents.

Commodities:

Most commodity prices rose supported by the stronger-than-expected Chinese trade data. Copper and gold prices rose, although oil prices slipped.

Australia:

Employment fell by 10.2k jobs in July, taking the total jobs added this year to 89k. 

Jobs growth has shifted down a gear.  In the same January-July period last year, 129k jobs were added.

Average monthly jobs gains this year are 12.7k, which is not enough to keep a lid on the unemployment rate.  Around 15-20k jobs per month are needed to just keep the unemployment steady.

The unemployment rate was steady in July at 5.7%. But that was because there was a drop in the number of the people looking for work, reflected in a drop in the participation rate from 65.3% in June to 65.1% to July. 

If the participation rate was unchanged in July from June, the unemployment rate would have been a near ten-year high of 6%.

The worrying aspect of the jobs data continues to be what is happening in full-time employment, which is the more stable segment of the employment market. 

Full-time jobs growth fell 6.7k in July and over the three months to July have recorded losses of 20.2k.  That is the largest loss over a three-month period in nearly two years (since September 2011).

Part-time employment also fell in July, by 3.5k.  But it follows a solid rise in the previous month.

China:

Chinese trade data surprised on the upside in July. Chinese exports grew by 5.13% in the year to July compared with a contraction of 3.1% in the year to June.

Imports were a larger surprise, bouncing from a fall of 0.7% in June to a rise of 10.9% in July. The surplus accordingly narrowed, to $US17.8bn from $US27.1bn previously. Although a positive sign, it is too early to conclude that Chinese growth is stabilising.

The move in imports may not be a sign of genuine strength. Our monthly estimates indicate that while imports rose by more than 10% in the month itself, that doesn't reverse the sharp June decline.

Japan:

The Bank of Japan left its policy stance unchanged at the conclusion of its meeting yesterday.

Europe:

The European Central Bank's (ECB) monthly report reiterated recent comments by ECB President Mario Draghi, that "underlying price pressures in the euro area are expected to remain subdued over the medium term."

German exports rose 0.6% in June, only partially reversing their 2% fall in May.

In H1 2013, exports fell 0.6% relative to the first six months of last year.

New Zealand:

House prices rose by 8.1% in the year to July, according to the QV measure.  That is the fastest annual pace of growth since January 2008.

United States:

Dallas Fed president Fisher has said in an interview that the Fed should start reducing bond purchases in September if "economic data doesn't significantly deteriorate".

Initial jobless claims for the week ending 3 August rose 5k to 333k, close to consensus expectations of 335k.

Despite the rise, claims have settled into a renewed downtrend suggesting the slowest pace of layoffs since before the 2008-09 recession.


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