The Australian equity market continued to make new highs this week whilst notching 8 consecutive months of gains, a run not seen since 2007.
Global markets were mixed with developed markets flat to lower, whilst Asian and emerging markets saw support from investors.
The oil price rose this week as OPEC chose not to increase oil supply by more than planned, boosting oil and gas stocks.
The Aussie dollar fell this week on the back of a stronger US dollar as US employment data came in better than expected.
The Reserve Bank of Australia left the cash rate at 0.1% at their June meeting this week, with analysts and economists way too invested and focused on some subtle changes to the Bank’s statement. The Bank understands that tapering too early will cost the economy dearly with inflation still well below target, very low wages growth, and the threat of rising Aussie dollar.
Australian real GDP (economic) growth rose by 1.8% in the 1st quarter to be 1.1% higher than a year ago. Household spending, business investment, dwelling investment and public capital expenditure all rose solidly in the quarter. Net exports detracted from growth as imports rose at a faster pace than exports.
Australian private sector credit rose by 0.2% in April, with annual growth now at 1.3%. Investor credit growth is gaining pace, rising at the fastest monthly pace since April 2017, while owner occupier growth continued at the same strong pace. Personal credit growth was flat for the month whilst business credit growth remains weak.
Australian dwelling prices rose by 2.3% in May across the 8 capital cities combined, with Hobart and Sydney seeing the strongest rises. Over the year, dwelling prices are up 9.4% across the country, but with big variances between cities and states.
Australian trade data showed exports recovered strongly in April, pushing the trade surplus to $8 billion, which is $2 billion more than in March. Imports declined by 3%.
US employment data came in better than expected with jobless claims lower, whilst US private employers increased hiring in May.
The US central bank’s preferred measure of inflation rose 0.7% in April, coming above analyst expectations and above the 0.4% increase in March. In the 12 months to April, the price index surged 3.1%, well above the central bank’s 2% target. Expect the data to get more volatile from here.
In its latest economic outlook, the OECD has revised up its US economic growth forecasts to 6.9% in 2021, after the economy contracted by 3.5% in 2020. The 2021 increase would be the biggest since 1984, boosted by huge government stimulus and fast vaccine rollout.
Confidence in the Euro-area economy improved in May to the highest level in more than 3 years as restaurants, hotels, and shops across the region start to reopen and faster vaccine rollout supports the recovery.
Inflation in the Euro area climbed to 2% in May, the highest level in more than 2 years. The news comes on the back of German inflation data which showed the annual rate rising to 2.4%.
Dovish comments from the European central bank policymakers, including President Lagarde who said it was too early to discuss slowing its pandemic emerging bond purchases.
China’s factory activity slowed slightly in May as raw material costs grew at their fastest pace in more than a decade. Another confirmation of too much government stimulus around the world.
Shipping costs from Asia to Europe rose above US$10,000 for the first time, up about 485% from the same time last year. A toxic combination of surging demand for goods and staffing shortages / disruptions. Also, another proof point that too much fiscal stimulus has been provided.
US President Biden has reportedly made a major concession to drop a corporate tax hike in infrastructure talks with Republicans. He had previously planned to lift the tax rate from 21% to 28%, which won’t get through the Senate. He has instead proposed a minimum 15% tax rate, squarely aimed at big corporates who pay little to no tax. So far, the Republicans aren’t budging.
China’s control on Hong Kong has increased with legislature in the city approving a sweeping Beijing-drafted overhaul of its elections. The changes will curtail the opposition’s ability to participate in government, so no more open elections.
The Chinese government announced they will now allow couples to have a third child in a bid to arrest an aging population and shrinking birth rate. The move some years ago to allow a 2nd child has largely had no effect. It will take many years, cultural change, and government assistance (ie. social security) before birth rates will change. The problem is China’s population is aging too fast, threatening their economic prospects.
A little quiet on the virus and vaccine front this week, with daily cases and deaths continuing to fall globally. Shortages of vaccine remain across emerging markets. Vaccine apathy seems to be a rising problem in many parts of the world, including Australia and some parts of the US, where no or declining virus cases has meant a return to pre-Covid life. Victoria’s 7-day lockdown was extended for another 7 days, on very low case numbers. Embarrassingly, it’s now been confirmed that many of the cases were false positives.
A very busy week on the virus origins front with critical information coming to light regarding the Wuhan virus laboratory leak theory with the US pushing hard for answers following the leak of information and the release of emails under freedom of information requests regarding virus/vaccine tsar Dr Anthony Fauci’s involvement in the research conducted at the Wuhan lab and use of US grants to fund that research. The Australian government finally getting support from others regarding their long ago push for the truth and answers regarding the origins and initial spread of the virus that has cost us dearly on the trade front.