St George Economics economy and finance update

Stock Markets:

Sentiment continued to be supported by the comments from Bernanke on Wednesday, which was interpreted as being "dovish" and suggested the Federal Reserve may not be as close to unwinding stimulus as previously expected.

Both the Dow and S&P500 rose to all-time highs, and closed 1.1% and 1.4% higher respectively.

The Euro-Stoxx also gained 0.8%, although political uncertainty in Portugal may have capped gains (see below for details).


US treasuries were volatile, but continued to gain support after Bernanke signalled stimulus would remain. Yields on 10-year notes fell, and have pulled back from near two-year highs.

Worries in Portugal saw their government bond yields increase, with 10-year yields up 13 basis points to 6.9%.

Foreign Exchange: 

The US dollar was relatively unchanged after sliding against most of the major currencies yesterday on Bernanke's comments.

Meanwhile, the yen strengthened on the Bank of Japan's upgrade in its assessment of the economy and after it refrained from adding to its stimulus program.

The Australian dollar rose on improved sentiment earlier yesterday, but then retreated back to below 92 US cents last night.


Copper and gold prices rose on hopes that the Federal Reserve would maintain stimulus.

Copper prices hit a near 1-month high, while gold rose to its highest in nearly three weeks.

Oil prices fell following a report by the International Energy Agency, which forecast a big jump in crude supply as a result of the North American shale oil boom.


Employment unexpectedly rose by 10,300 jobs in June, but it was still not enough jobs growth to keep a lid on the unemployment rate. 

The unemployment rose from an upwardly revised 5.6% in May to 5.7% in June, the highest unemployment rate in nearly four years. 

Leading indicators of employment suggest the current soft patch the labour market will linger. 

A breach of 6% in the unemployment rate later this year, therefore, is a possibility.

The most worrying aspect of the data lies with what is happening in full-time employment. 

There were only 64k full-time jobs created in the year to June, not much of an improvement on 2011/12 and significantly down on the 214k jobs created in 2010/11. 

Part-time job creation is picking up some of the slack, but not enough.  Subdued levels of confidence among businesses are keeping hiring intentions modest. 

The jobs outlook suggests the pressure remains on the RBA to tap on the accelerator again.


Political risks are building Europe, particularly within Portugal.

The President rejected a proposed coalition government pulled together by the prime minister after ministerial resignations last week.

The President called for an early election next year and is seen as lack of confidence by the president in the parties to rule effectively. 


The Bank of Japan refrained from adding to unprecedented monetary stimulus and raised its assessment of the economy, referring to a recovery for the first time since before a record 2011 earthquake. 

The Bank of Japan stuck with a pledge to expand the monetary base by 60 to 70 trillion yen per year. 

New Zealand: 

The performance of manufacturing index fell to 54.7 in June, from 59.0 in May.  The index over 50 indicates an expansion in manufacturing.

United States: 

US initial jobless claims rose 16k to 360k for the week ending 6 July, but the data has been be affected by the Independence Day holiday and summer auto plant shutdowns.

US import prices fell 0.2% in June, their fourth straight decline, with petroleum prices up just 0.2% and ex fuel prices down 0.3%.

The stronger US dollar in recent months would be a factor at play.

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