Main Themes: The mood in financial markets was slightly more upbeat with share markets and bond yields higher overnight.
Share Markets: Share markets in the US mostly moved higher overnight. The S&P 500 index broke a three-day losing streak to close 5 points (or 0.2%) higher. The Nasdaq lifted to a new record high, but the Dow Jones fell 42 points (or -0.2%).
Interest Rates: The US 10-year treasury yield rose from 2.89% to 2.93% and 2-year yields nudged higher from 2.55% to 2.56%. Fed fund futures yields were steady, continuing to price 1½ more hikes in 2018.
Foreign Exchange: The AUD/USD exchange rate slipped from 0.7408 to 0.7369. The Australian dollar has been in a trend decline since late January. In the near term, there is little to change this direction.
Commodities: The odds of OPEC reaching an oil-production deal increased as Iran edged away from a threat to veto any agreement that would raise output.
Australia: The leading index of economic activity fell by 0.2% in May. The six-month annualised rate of growth in the leading index fell, from 0.83% in April to 0.11% in May. This pace suggests growth will ease to close to a trend pace of growth over the next three to nine months.
Skilled vacancies declined by 0.9% in May. It was the third consecutive monthly decline in the index. For the year to May, however, skilled vacancies increased 5.9%.
New Zealand: The current account moved back into surplus in Q1, at NZ$0.182 billion. This was up from a deficit of NZ$2.745 billion in Q4. The improvement reflected an improvement in the goods and services balance. Imports fell and service exports rose in the quarter.
United Kingdom: Prime Minster Theresa May won a key vote on Brexit. The House of Commons rejected by a vote of 319-303 a proposal to make the government get Parliament's approval before agreeing to a final divorce deal with the European Union or before walking away from the bloc without an agreement.
United States: The current account deficit narrowed in Q1 due to investment flows owing to the corporate tax changes. At 2.5% of GDP, the deficit is stable, manageable and benign on an historic basis.
Existing home sales declined by 0.4% to 5.43 million in May. A lack of supply continues to impact existing home sales.
Federal Reserve Chair Powell affirmed the gradual approach to normalisation, adding “the case for continued, gradual increases in the federal funds rate is strong”. Powell cautioned that changes in trade policies could cause revisions to the outlook.
Today’s key data and events
NZ GDP Q1 exp 0.5% prev 0.6% (8:45am)
EZ Consumer Confidence Jun exp 0.0 prev 0.2 (12am)
UK BoE Bank Rate exp 0.50% prev 0.50% (9pm)
US Philadelphia Fed Jun exp 29.0 prev 34.4 (10:30pm)
US FHFA House Prices Apr exp 0.5% prev 0.1% (11pm)
US Leading Index May exp 0.4% prev 0.4% (12am)
Times are AEST. All data forecasts are m/m or q/q and seasonally adjusted unless otherwise specified. Forecasts for Australian data are our forecasts and for other countries they are consensus forecasts.
Besa Deda, Chief Economist