Global confidence not strong

Global confidence is not strong.

Is the US economy recovering with better times ahead Fed believes? Or is China in a liquidity crisis and a bubble? 

Perhaps both, but Dr. Copper certainly isn't looking very cheerful.

Source: kitco

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China manufacturing slows

As anticipated by forecasts, China's manufacturing index slowed to a reading of 50.1.

It was still enough to spark a sell-off of Aussie shares, down 1.9% for the first day of the financial year.

Nevertheless, interest rates should be kept on hold tomorrow at 2.75%.



Source: ASX

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China data extends US stock records

It's a day for records.

The data out of China sees the S&P 500 in the US continue to break records up to 1,682.50 and the Dow ticked up 20 points or so to 15,484.

The S&P 500 has now closed up for 9 consecutive trades as investors continue to be buoyed be stimulus.

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Labour data pushes out the next rate cut

The futures markets continue to price in another interest rate cut to 2.50%, but after the promising Labour Force and unemployment data, it doesn't look to be coming for a month or three yet.

We've also had several consecutive months of steadily increasing housing finance data, which suggests that the notion of falling dwelling prices was flawed, as a fair number of us had intimated all along. 

Back on June 4, the RBA left the official cash rate in June unchanged at 2.75%

The next RBA Board Meeting and Official Cash Rate announcement will be on July 2 and 30 Day Interbank Cash Rate Futures July 2013 contracts are trading a shade above 97.3, which indicates only about a one-in-four expectation of an interest rate decrease to 2.50% at the next RBA Board meeting.

Given that the next round of CPI (inflation) data, isn't due until July 24, I'd have to agree that August 6 looks to be a significantly more likely candidate for a rate cut than July does.

And by then, of course, we'll all have a clearer picture on retail activity and more employment stats to digest.

Potential curve balls on the horizon - a bubble in China? Some concerning news stories doing the rounds...

Source: ASX

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Rising exports lead to trade surplus in May

4th month of trade surplus in a row, driven by a large jump in iron ore exports and coal. A large increase in exports to China this month.

Trade surplus was $670m for the month, with the market only having expected around $50m.

Heartening to know that we do also sell resources and not only build mines!

Source: ABS

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China growth slows to 7.7%

From Business Spectator:

"China's trade surplus widened less than expected in June, according to official statistics.

In June, China's trade surplus came in at $US27.12 billion ($A29.85 billion), after a May result of $US20.43 billion.

Bloomberg analysts forecast a trade surplus of $US27.8 billion.

Exports in the month decreased by 3.1 per cent, against expectations of a 3.7 per cent rise.

Imports shrank by 0.7 per cent, well below expectations of a six per cent increase.

Customs spokesman Zheng Yuesheng says China's foreign trade is "facing grave challenges".

The main cause was "prolonged sluggish foreign demand", followed by rising export prices in foreign currency terms, labour costs, and a deteriorating trade environment due to rising trade disputes, he said.

But the trade surplus for the first six months of 2013 was substantially higher than the same period last year, the statistics showed, up 58.5 per cent to $US107.95 billion.

First half exports rose 10.4 per cent to $US1.05 trillion and imports increased 6.7 per cent to $US944.87 billion.

Mr Zheng said the factors bedevilling China's trade situation are likely to linger over the short term."

Futures markets are now pricing in an August interest rate cut as 62% likely.

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Inflation remains soft

The inflation data today did not reveal any horrors, so the Reserve Bank has the 'room' to cut interest rates should it so wish.

The headline rate of CPI was only 0.4% for the quarter, leading to a year-on-year figure of 2.4%, or 2.3% seasonally adjusted.

This is broadly in the middle of the targeted range of 2-3%.



Source: ABS

When the one-off effect of the carbon tax is stripped out, the headline result might be considered to be at the bottom of the target range at close to 2%, which might imply that an interest rate cut is in the pipeline.

However, an interest rate cut is not a done deal.

The weighted median and trimmed mean readings, which are the Reserve Bank's preferred measures as those which look to strip out the impact of outlying readings and thus provide a more balanced result, showed a slightly different picture.

Source: ABS

Year-on year, these measures came in at 2.2% and 2.6%.

While these figures also suggest that there is room for a cut, some exercise might be cautioned as so-called 'tradeables inflation' may be expected to increase as a result of the Australian dollar having fallen from above 106 cents towards the bottom of the 90 cent range.

The other news which may have a bearing on the August interest rate decision today was a weaker-than-expected flash PMI reading from China.

On balance, futures markets remain undecided, and price in a cut as around a 6 in 10 chance, while the dollar took a while to make its own mind up, before settling on something of an each way bet sitting at around 92.5 cents.

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The two-speed nature of the housing market continues to be emphasised with dwelling prices in Adelaide falling by 2.9% over the last quarter, while those in Sydney increased by 3.5% according to RP Data.

Yield-chasing investors have been tipping Adelaide for half a decade, but they got it wrong. 

In fact, throwing a pin at an Australian property dart board would on average have scored a much better result.

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