St George Economics economy and finance update
The US stockmarket softened on Friday, with uncertainty about when the Fed will start tapering quantitative easing (QE) weighing on sentiment.
On Thursday Dallas Fed President Fisher had reiterated that the Fed will probably begin the process in September.
The Dow fell 0.5%, the S&P 500 lost 0.4% and the Nasdaq was off 0.3% for the session.
US bonds finished little changed, with the long end closing slightly higher (yields lower) given a lack of new supply and the stockmarket's decline from near-record highs.
The Aussie dollar strengthened against the major currencies on Friday, with stronger than expected economic data from China providing support for the local currency.
The US dollar gained ground against some of the other major currencies on expectations of an improvement in US economic data. Sterling edged lower against the US dollar on Friday night despite better than expected UK trade data, although this failed to reverse the solid gains in Sterling earlier in the week.
The oil price rebounded on Friday night on supply concerns given disruptions in the North Sea supply.
The copper price strengthened on hopes of increased demand, given upbeat economic data in China of Friday.
In the RBA's quarterly Statement on Monetary Policy, growth forecasts were slightly downgraded from May to 2.25% in the year to December. Meanwhile inflation forecasts were largely unchanged.
The major changes to the outlook reflected a weaker outlook for mining investment and a lower Australian dollar. Our expectations for a further decline in the Australian dollar would provide support for the domestic economy and may enable the RBA to hold off from pulling the trigger on rates once again. Indeed, the reading of the commentary suggests the RBA may have shifted to a more neutral stance.
However, an expected rise in the unemployment rate, still subdued business confidence and the prospect for mining investment to decline sharply will mean another rate cut in this cycle remains a possibility.
Industrial production rose 9.4% in the year to July, stepping up from annual growth of 8.9% in June. July's result also exceeded consensus forecasts for a 9.7% annual increase.
In other data, retail sales lifted 13.2% in the year to July, only slightly below consensus estimates for a 13.5% rise.
Meanwhile, fixed asset investment rose a solid 20.1% in the first seven months from the same period last year. The data provide some further promising signs that growth is stabilising.
Price data from China was also released, which saw CPI rising 2.7% in the year to July, and producer prices falling 2.3% in the year to July. Both were in line with consensus estimates and suggest that inflation remains well-contained.
Consumer confidence fell from 44.3 to 43.6 in July, the second consecutive monthly fall. The decline in confidence may highlight some concern about the slow pick up in wage growth as the optimism from recent stimulus measures begins to wane.
Exports rose 4.9% in June (despite a decline in exports to the rest of Europe), while imports were up 2.0%. The UK trade deficit narrowed from £8.7bn to £8.1bn in June.
Wholesale inventories fell 0.2% in June. This was the fourth decline in the last five months, as firms continue to keep excess stocks at a minimum.
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