Spectacular! That is the only way to describe the performance of the Australian economy in the first quarter of the year, at least according to the latest data from the Australian Bureau of Statistics.
The Australian economy grew by 1.3 percent q/q, more than double the consensus estimates, as the mining investment boom gathered momentum. Non-dwelling construction soared 12.6 percent adding 1 percent to growth, while household spending was also strong, adding 0.9 percent to overall growth, although this does reflect a period prior to the worsening global situation and back-to-back interest rate cuts from the RBA. Needless to say the AUD soared after the data, rising to its highest level in a week versus the US dollar.
Post-data Australian Treasurer Swan commented that it shows the economy’s exceptional growth and rock-solid fundamentals. Rates markets adjusted accordingly, with short-term yields up 15bp. While OIS markets are still suggesting a 25bp rate cut in July, this may now be in question following the data, and chances of a 50bp cuts have shifted from 50/50 to a 1-in-4 chance.
The UK returns from the long jubilee weekend today and is greeted by some poor data. Lloyds business barometer for May (compiled mid-month) lurched into negative territory for the first time in 4 months and fell to its lowest level (-21) in 6 months.
Early in the Asian session, the market reacted to a WSJ headline from journalist Jon Hilsenrath, who writes frequently about the Fed and is thought to have inside sources, suggesting the weaker US data of late has prompted a shift at the Fed to put additional easing measures back on the table. Meanwhile noted Fed dove Evans commented that more easing is necessary with growth only moderate, while rates should be kept low until unemployment drops below 7% or inflation rises above 3%. That accounted for early US dollar weakness in the session.
It was a volatile session for the EUR overnight, with the end result being a weaker currency. There were plenty of reasons for selling – Spanish FinMin Montoro commented it was technically impossible to save the country as it slowly loses access to financial markets, Euro-zone retail sales were particularly soft (-1.0% m/m) and German factory orders dived 1.9% m/m. On a small positive note, Euro-zone services PMI was slightly better than the previous flash estimate, coming in at 46.7 rather than 46.5. The G7 conference call mainly discussed financial/fiscal integrity and ended with no official statement.
In the North American session, the Bank of Canada kept rates unchanged at 1.0% but left its tightening bias intact while the US non-manufacturing PMI was marginally better at 53.7 from 53.5. Wall St managed a rebound after four straight days of losses with financial stocks outperforming. DJIA closed +0.22 percent, S&P +0.57 percent and the Nasdaq +0.66 percent.
Data Highlights
CA Apr. Building Permits out at -5.2% m/m vs. -1.5% expected and revised +4.9% prior
CA Bank of Canada leaves rates unchanged at 1.0%
SI May PMI out at 50.4 vs. 49.4 expected and 49.7 prior
US May ISM Non-manufacturing out at 53.7 vs. 54.4 expected and 53.5 prior
UK May BRC Shop Price Index out at +1.5% y/y, as expected vs. 1.3% prior
UK May Business Barometer out at -21 vs. +26 prior
AU Q1 GDP out at +1.3% q/q, +4.3% y/y vs. 0.6%/3.3% expected and revised 0.6%/2.5% prior resp.
Upcoming Economic Calendar Highlights
(All Times GMT)
UK PMI Construction (0830)
EU Euro-zone Q1 GDP (0900)
GE Industrial Production (1000)
US MBA Mortgage Applications (1100)
EU ECB Rate Announcement (1145)
US Fed’s Lockhart to speak (1215)
EU ECB Press Conference (1230)
US Non-farm Productivity (1230)
US Unit Labour Costs (1230)
US Fed’s Tarullo to testify (1400)
Andrew Robinson,
SAXO BANK