Main Themes:Markets were fairly contained overnight due to the US Independence Day public holiday. European shares lifted, continuing to be supported by expectations of monetary easing. German 10-year bund yields hit a record low of -0.4%.
Share Markets: Global share markets continued to be pushed higher by expectations of monetary stimulus. The Euro Stoxx 50 edged up 0.1%. Italian shares jumped after Italy avoided disciplinary action by the European Union. US markets were closed for Independence Day holiday. Australian share futures are suggesting a gain in trading today.
Interest Rates: German bunds yields fell further in to negative territory with 10-year yields at -0.40%, a record low, reflecting growing market expectations that the ECB will cut rates.
Australian bond yield futures were little changed, but still point to yields close to record lows. Yields implied by 10-year bond futures stood at 1.29%, and 3-year futures were at 0.90%.
Foreign Exchange: The US holiday kept currency markets subdued and ahead of the all-important non-farm payrolls report to be released tonight. The June release follows a particularly weak May reading, and could help determine whether the Federal Reserve cuts rates later this month. The US dollar index trended sideways. The Australian dollar continued to hold above US 70 cents. AUD spiked to as high as 70.5 US cents before settling at around 70.2 US cents this morning.
Commodities: Brent oil prices fell in light trading, as US inventories fell by less than expected. Gold prices weakend but remain close to a six-year high.
Australia: Retail spending remained subdued in May, eking out just a 0.1% gain. It followed a 0.1% decline over April. On an annual basis, retail sales growth eased from 2.8% in April to 2.4% in May, which was the weakest since January 2018.
It was the categories in discretionary retailing that dragged down annual growth, including department store retailing, household good retailing and spending on clothing, footwear and personal accessories. Perhaps it’s the influence of organisational expert, Marie Kondo, but this weakness likely suggests some renewed caution among consumers.
Job vacancies fell by 1.1% in May, after a rise of 1.2% in April, according to ABS data. It is the first fall in vacancies since August 2014. The RBA will be watching labour indicators closely, as one of its primary motivations in cutting the cash rate again this week was to foster a decline in the unemployment rate so as to boost wage pressures.
Europe: Retail sales fell 0.3% in May, versus expectations for a 0.3% rise. It was the second consecutive fall, and highlights ongoing weakness in the euro zone economy.
European Central Bank (ECB) Governing Council member Olli Rehn has said that “we should no longer see the recent slowdown in growth as a brief temporary dip in the economy, as a ‘soft patch’. Rehn also called on action by the ECB, adding that “if we really want to live up to our mandate, further monetary stimulus is now needed until there is improvement in economic and inflation prospects”.
United States: US officials are organizing a resumption of US-China trade talks next week. China has said that existing US tariffs need to be removed if there is to be a trade deal.
There were no economic data releases last night due to Independence day.
Today’s key data and events:
AU AiG Perf of Construction Index Jun prev 40.4 (8:30am)
JN H’hold Spending May y/y exp 1.5% prev 1.3% (9:30am)
JN Leading Index May exp 95.4 prev 95.9 (3pm)
UK Halifax House Prices Jun exp -0.4% prev 0.5% (5:30pm)
UK Unit Labour Costs Q1 y/y prev 3.1% (6:30pm)
US Non-farm Payrolls exp 160k prev 75k (10.30pm)
US Unemployment Rate Jun exp 3.6% prev 3.6% (10.30pm)
Janu Chan, Senior Economist