St George Economics economy and finance update

Share Markets:

It was a mixed night in financial markets, while stocks were volatile. European shares fell, as the ECB failed to provide additional stimulus.

This was despite an upgraded assessment for the growth outlook. US shares tracked European shares lower, but recovered later on with no obvious catalyst.

The Euro Stoxx fell 1.2%, while US markets closed higher.

The Dow rose 0.5%, the S&P500 lifted 0.9% and the Nasdaq rose 0.7%. Focus will turn to the key non-farm payrolls report tonight, which should shed some further light on conditions in the US labour market.


US treasuries were similarly volatile. Ten-year yields initially fell, but then partially recovered to be marginally lower. Investors are looking ahead to payroll data for cues on Fed policy action.

Foreign Exchange: 

The US dollar weakened against the euro and the yen, under pressure on nervousness ahead of the jobs report.

The euro rose to its highest since February as the ECB left policy unchanged.

The Australian dollar also rose against the US dollar, but it has remained under pressure on growing talk of another rate cut from the RBA.


Commodity prices were supported by the weaker US dollar, with gold prices rising to a near three-week high. Oil prices rose on news that Britain's largest oil field was shut down and a major US refinery was preparing to restart production.


The trade surplus for April narrowed to $28mn from a revised $555mn surplus in March.

The surplus was less than expected however, it remains an improvement on the consecutive months of deficits throughout 2012.  Exports fell 1.3% in April, weighed down by lower commodity prices, while imports fell 0.2% in April.


The European Central Bank (ECB) left rates unchanged at its June meeting. In the press conference there appeared to be a mild softening in the language with regards to further easing.

News and data over the month meant there was a "vastly prevailing consensus" to take no action while on the topic of negative interest rates, while still on the table, it was decided there was "no reason to act on this front".

Despite retaining an easing bias, there appears no hurry at this point for further action given the data are holding up.

However, pressure for additional policy stimulus will remain given the region still in recession, and headwinds remain.

That said, Draghi's comments suggested that growth should return to the region later this year.

German factory orders contracted 2.3% in April completely offsetting the increase that occurred in March.

However, the quarterly average is still in positive territory. The fall was led by investment goods (-3.6%) although there was a big rise in consumer goods which were up 7.5%.

United Kingdom: 

The Bank of England (BoE) maintained its existing policy stance at the June meeting. The bank rate was left on hold at 0.5% and there was no change to the asset purchase programme.

The minutes will likely show little change from the last few meetings with a minority still pushing for further easing.

United States: 

US initial jobless claims fell to 346k for the week ending 25 May from 357k.

This was broadly in line with consensus and there were no reported statistical issues or special one-off factors reported by the Labour Department.

The four-week average moved up slightly to 353k from 348k, but continues to point to moderate growth in jobs.

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