Wed 4 Jul 2018


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In Portfolioticker today

read_this Hey Jarvis, how did we go today?

Today at the stock market

USA’s NASDAQ and NYSE markets were closed today, following an early (13:00 EDT) close yesterday.

World stocks were flat on Wednesday amid growing anxiety ahead of Washington’s end of week deadline to impose tariffs on Chinese imports, while the yuan steadied after the Peoples Bank of China acted to calm investors.

Washington has said it would implement tariffs on $34 billion worth of Chinese imports on July 6, and Beijing has promised to retaliate in kind on the same day. However, China’s finance ministry said it will “absolutely not” fire the first shot in a trade war with the United States and will not be the first to levy tariffs.

Concerns about the outbreak of a global trade war have, among other factors, prevented a sustained recovery in global stock markets since a violent sell-off knocked them off records highs in February.

The United States has listed another 284 product lines valued at $16 billion that it will target with tariffs, including semiconductors and a broad range of electronics.

U.S. President Donald Trump also threatened tariffs on as much as $400 billion worth of Chinese goods if Beijing retaliates against the U.S. tariffs due to go into force on Friday.Reuters

Portfolio Indices

USD and AUD denominated indices over the past 52 weeks (Chart: Bunting)
^ USD and AUD denominated indices over the past 52 weeks Chart: Bunting

Index values

Index Currency Today Change 31 Dec 17 YTD
USD-denominated Index AUD 3.470 +0.00% 3.068 +13.13%
Valuation Rate USD/AUD 0.74341 -0.04% 0.78528 -5.34%
AUD-denominated Index AUD 4.668 +0.03% 3.909 +19.42%

Selected Tech News Headlines

  • Google says it’s not reading your Gmail, except when it does…: “The Wall Street Journal reported that users who signed up for “email-based services” like “shopping price comparisons,” and “automated travel-itinerary planners” were most at risk of having their private messages read. In response to the story, Google published a blog on Tuesday detailing how third-party developers have to go through an involved review process before they are given access to Gmail. Suzanne Frey, Google Cloud’s director of security, trust, and privacy, also said that Gmail’s 1.4 billion users hold the keys to their own data and can control permissions. In the same piece, Frey was at pains to point out that Google itself does not read user emails. Gmail automatically processes emails to filter out spam and phishing messages, which Frey said had “caused some to speculate mistakenly that Google ‘reads’ your emails.” “To be absolutely clear: No one at Google reads your Gmail,” she added, before immediately listing the times Google does allow itself to have a peek at your inbox. Frey said it is limited to “very specific cases.” These include when users give Google permission to access their messages, and when the company needs to investigate a security issue, such as a bug or “abuse.” She did not offer more detail than this, however, meaning it’s not clear whether Google has the power to probe Gmail problems without notifying a user. Business Insider contacted Google for comment.Business Insider Google

Currencies: USD/AUD

USD/USD

audusd
^ AUD vs Bloomberg Dollar Spot Index (DXY) movements today Chart: Bloomberg

USD

DXY movements
^ Bloomberg Dollar Spot Index (DXY) movements today (mouseover for 12 month view) Chart: Bloomberg

The EUR erased losses on the chance of an earlier rate increase by the European Central Bank (ECB) after a report that some policy makers were uneasy about expectations for a hike as late as December 2019.

While the People’s Bank of China (PBOC) yesterday gave assurances that the CNY won’t be weaponized, governmental trade restrictions and market intervention remain key themes. The latest tit-for-tat moves include a Chinese court temporarily banning chip sales by an American tech firm, while tariffs on goods flowing the other way come into effect on Friday. With U.S. markets closed for Independence Day, the focus is shifting to a busy end to the week, when minutes from the last Federal Reserve meeting and jobs numbers are due. The move in the CNY set a gauge of developing market currencies on course for the first back-to-back gains in a month, while the MSCI Emerging Market Index of stocks headed for a third consecutive decline.

The Bloomberg Dollar Spot Index (DXY) fell 0.1% to the lowest since Friday.
The EUR was slightly higher at USD 1.1662 after having fallen as much as 0.2%.
Britain’s GBP rose 0.3% to USD 1.3237, the strongest in more than a week.
Japan’s JPY fell 0.1% to 110.48 per USD.

Britain’s 10-year yield rose 3 basis points to 1.269%, the biggest climb in more than a week.
Germany’s 10-year yield rose 1 basis point to 0.31%, the largest advance in more than a week.
France’s 10-year yield rose 1 basis point to 0.645%, the first advance in more than a week.
Bloomberg

The Canadian CAD steadied against its U.S. counterpart on Wednesday while holding near its strongest level in nearly 3 weeks, as oil prices rose and investors braced for a potential interest rate hike next week from the Bank of Canada. Reuters

AUD

AUD movements
^ AUD movements against the USD today (mouseover for 12 month view) Chart: xe.com

Oil and Gas Futures

Futures prices

Prices are as at 12:59 EDT

  • NYMEX West Texas Intermediate (WTI): $74.33/barrel +0.26% Chart
  • ICE (London) Brent North Sea Crude: $78.24/barrel +0.62% (13:29 EDT) Chart
  • NYMEX Natural gas futures: $2.84/MMBTU -0.98% Chart

flag_australia AU: Household Debt

From the NewYorker

ASIC’s review of credit cards reveals more than one in six consumers struggling with credit card debt

ASIC’s review into credit card lending in Australia has found that 18.5% of consumers are struggling with credit card debt. ASIC reviewed 21.4 million credit card accounts open between July 2012 and June 2017.

asic_opencc_20180704

ASIC’s report released today (REP 580) finds that while credit cards offer flexibility, they can present a debt trap for more than one in six consumers. In June 2017 there were almost 550,000 people in arrears, an additional 930,000 with persistent debt and an additional 435,000 people repeatedly repaying small amounts.

asic_ccdebt_20180704

‘Our findings confirm the risk that credit cards can cause financial difficulty for many Australian consumers’, ASIC Deputy Chair Peter Kell said.

Consumers are also being provided with credit cards that don’t meet their needs. For instance, many consumers carry balances over time on high interest rate products, when lower-rate products would save them money. ASIC estimates that these consumers could have saved approximately $621 million in interest in 2016–17 if they had carried their balance on a card with a lower interest rate.

Deputy Chair Kell said that ‘only a handful of credit providers take proactive steps to address persistent debt, low repayments or poorly suited products. There are a number of failures by lenders to act in the interests of consumers and we expect them to respond swiftly to our findings. We will be following up to ensure the problems we have identified are addressed, including public updates later this year’.

ASIC has also today commenced consulting on a new requirement that will strengthen responsible lending practices for credit cards.

ASIC also looked at balance transfers and their effect on debt outcomes. The data shows that while many consumers reduce their credit card debt during the promotional period of transfer to a new card, a concerning number of consumers increase their debt: over 30% of consumers increase their debt by 10% or more after transferring a balance.

asic_transfers_20180704

ASIC found that rules introduced in 2012 that require lenders to apply repayments against amounts accruing the highest interest first have helped reduce the interest charged on credit card debt. However, four lenders (Citi, Latitude, American Express and Macquarie) have retained old rules for grandfathered credit cards open before June 2012. ASIC estimates that almost 525,000 consumers have paid more interest as a result.

ASIC found that while these four credit providers are not breaking the law, they are charging their longstanding customers more interest than they should have been, and their conduct is out of step with the rest of the industry.

In anticipation of a new Banking Code of Practice, from 2019 Citi and Macquarie will no longer retain the older repayment allocation methodology for grandfathered credit cards. American Express has also indicated that it will make this change in 2019. Latitude is considering its position.

Australian Securities and Investments Commission More Report (PDF)

flag_australia AU: Risks Increase for Highly Leveraged Home Buyers

Press Report Extract [au_housing]

The Domain House Price Report 2017 indicates a fall in the median price values of apartments over the Dec 2017 quarter:

  • Sydney: Apartments -0.4% to $736,879; Houses +0.5% to $1,179.518
  • Melbourne: Apartments +2.8% to $506,079; Houses +3.2% to $903,859
  • Brisbane: Apartments -2.2% to $385,955; Houses -0.6% to $548,918
  • Adelaide: Apartments -1.6% to $315,794; Houses +0.9% to $522,815
  • Perth: Apartments +1.0% to $369,402; Houses +0.5% to $557,567
  • Darwin: Apartments +9.3% to $395,279; Houses -2.6% to $565,696
  • Canberra: Apartments +0.1% to $426,124; Houses +5.0% to $753,516
  • Hobart: Apartments -0.8% to $318,467; Houses +10.0% to $443,521

Domain, “Domain House Price Report, Dec 2017Report

Home owners and investors looking to refinance – especially those who bought at the peak of the boom – could face an uphill battle if valuations of their properties come back lower than expected, or worse still, below purchase price. A recent survey by online lender State Custodians revealed one in seven home owners were unsuccessful in refinancing their mortgage in the past because the value of their property had fallen. The situation was worse for young home owners, with a third of 18 to 34-year-olds having trouble refinancing due to falling values. “Anyone who has not yet built up a substantial amount of equity in property or whose property has fallen in value is more likely to be unsuccessful in seeking refinancing,” said State Custodians general manager Joanna PrettyDomain

flag_australia AU: Commonwealth Bank Australia Services PMI. Jun 2018

Press Release Extract [au_psi]

Key Findings

  • Services PMI for Jun 2018: 52.7, up from 55.9 in May 2018
  • Composite PMI for Jun 2018: 52.9, up from 55.6 in May 2018

Services PMI

au_services_pmi_20180704

Business activity in the Australian service sector expanded at a noticeably slower rate during June, despite stronger rises in both sales and employment. At the same time, increased workforce numbers failed to prevent a further stretching of operating capacities, with backlogs of work increasing. Input prices rose sharply amid higher staff costs, but firms were reluctant to pass these on to selling charges in order to remain competitive.

The headline figure derived from the survey is the Commonwealth Bank of Australia Services Business Activity Index, which is designed to provide timely indications of changes in business activity in the Australian service sector. Readings above 50.0 signal an improvement in business activity on the previous month while readings below 50.0 show deterioration.

The seasonally adjusted Business Activity Index recorded 52.7 in June, down from 55.9 in May, signalling a far slower expansion in output across the Australian service economy. In fact, the rate of growth in activity was the weakest observed across the 26-month survey history.

Although service sector output increased to a softer degree, the rise was still moderately sized. Panellists pointing to greater activity reported increased new business opportunities. Survey data signalled a strong monthly expansion in order book volumes during June that was only fractionally softer than February’s 2018 peak. The upturn in sales was attributed to new marketing campaigns and improved demand from both domestic and foreign clients.

Firms expanded workforce numbers to accommodate stronger inflows of new work during the latest survey period. The rise in employment was solid overall and greater than in May. However, despite improved operating capacities, backlogs of work were accumulated, as has been the case in each month since data collection began in May 2016. That said, outstanding business increased only modestly and to a softer extent.

As a result of increased recruitment, service sector businesses incurred higher labour costs. Panellists also mentioned higher salaries and increased fuel prices
had driven up cost burdens in June. The rate of input price inflation was sharp overall and the joint-strongest since August 2017 (on a par with November of that year). However, firms did not pass on greater costs to clients, instead leaving output charges unchanged in order to remain competitive.

Looking ahead, companies remained optimistic that output will continue to expand over the coming 12 months. Planned new product launches and forecasts of stronger sales growth were cited as reasons to be confident.

Composite PMI

au_composite_pmi_20180704

The seasonally adjusted Commonwealth Bank Composite Output Index fell to 52.9 in June, from 55.6 in May, thereby signalling a marked slowdown in Australian private sector output growth. In fact, the latest expansion was the slowest recorded since the survey began in May 2016.

Comment: CBA’s Chief Economist, Michael Blythe

‘Australia’s services sector appears to have slowed sharply in June. But the underlying data point to ongoing resilience. Strong growth in new business and employment and the very positive expectations for the year ahead indicate we shouldn’t read too much into the apparent slowing in business activity. Panellists are reporting that wages are rising along with headcount. The direction of wages is key to how economic and interest rate risks play out in the year ahead.’

IHS Markit, “Commonwealth Bank Australia Services PMI. Jun 2018“, 4 Jul 2018 (09:00 AEST) More

flag_australia AU: International Trade in Goods and Services. May 2018

container_ship_201702a

Press Release Extract [au_trade]
Mar 2018 Apr 2018 May 2018 Change
EXPORTS of goods and services (Credits)
Trend estimates $34,651m $35,043m $35,322m +1%
Seasonally adjusted $34,853m $34,209m $35,562m +4%
IMPORTS of goods and services (Debits)
Trend estimates $33,822m $34,071m $34,266m +1%
Seasonally adjusted $33,712m $33,737m $34,735m +3%
BALANCE on goods and services
Trend estimates +$829m +$973m +$1,056m +9%
Seasonally adjusted +$1,141m +$472m +$827m +75%

EXPORTS (CREDITS OF GOODS AND SERVICES)

  • Between April and May 2018, the trend estimate of goods and services credits rose $279m (1%) to $35,322m.
  • In seasonally adjusted terms, goods and services credits rose $1,353m (4%) to $35,562m. Non-rural goods rose $938m (4%) and non-monetary gold rose $343m (22%). Rural goods fell $4m. Net exports of goods under merchanting remained steady at $4m. Services credits rose $75m (1%).

Exports of Goods

Rural Goods

  • In trend terms, exports of rural goods rose $76m (2%) to $4,011m.
  • In seasonally adjusted terms, exports of rural goods fell $4m to $3,994m.

The main component contributing to the fall in seasonally adjusted estimates was other rural, down $108m (6%).

Partly offsetting this fall were meat and meat preparations, up $49m (4%), and wool and sheepskins, up $42m (11%).

Non-Rural Goods

  • In trend terms, exports of non-rural goods rose $152m (1%) to $22,290m.
  • In seasonally adjusted terms, exports of non-rural goods rose $938m (4%) to $22,427m.

The main components contributing to the rise in seasonally adjusted estimates were:

  • other mineral fuels, up $325m (9%),
  • metal ores and minerals, up $322m (4%)
  • coal, coke and briquettes, up $298m (6%).

Net Exports of Goods Under Merchanting

  • In trend terms, net exports of goods under merchanting fell $1m (50%) to $1m.
  • In seasonally adjusted terms, net exports of goods under merchanting remained steady at $4m.

Non-Monetary Gold

  • In trend terms, exports of non-monetary gold rose $17m (1%) to $1,789m.
  • In original and seasonally adjusted terms, exports of non-monetary gold rose $343m (22%) to $1,873m.

Exports of Services

In trend terms, services credits rose $33m to $7,230m.

In seasonally adjusted terms, services credits rose $75m (1%) to $7,264m.

The main components contributing to the rise in seasonally adjusted estimates were:

  • travel, up $62m (1%)
  • other services, up $10m (1%).

In seasonally adjusted terms, tourism related services credits rose $65m (1%) to $4,917m.

In seasonally adjusted terms, total services credits contributed 20% of total goods and services exported.

DEBITS (IMPORTS OF GOODS AND SERVICES)

  • Between April and May 2018, the trend estimate of goods and services debits rose $195m (1%) to $34,266m.
  • In seasonally adjusted terms, goods and services debits rose $998m (3%) to $34,735m. Consumption goods rose $471m (6%), intermediate and other merchandise goods rose $459m (4%) and non-monetary gold rose $142m (23%). Capital goods fell $98m (2%). Services debits rose $23m.

Imports of Goods

Consumption Goods

  • In trend terms, imports of consumption goods rose $10m to $8,755m.
  • In seasonally adjusted terms, imports of consumption goods rose $471m (6%) to $8,951m.

The main components contributing to the rise in seasonally adjusted estimates were:

  • consumption goods n.e.s., up $191m (7%)
  • textiles, clothing and footwear, up $102m (7%)
  • food and beverages, mainly for consumption, up $78m (6%).

Capital Goods

  • In trend terms, imports of capital goods rose $4m to $6,192m.
  • In seasonally adjusted terms, imports of capital goods fell $98m (2%) to $6,121m.

The main components contributing to the fall in seasonally adjusted estimates were:

  • Computer equipment, down $100m (10%)
  • civil aircraft and confidentialised items, down $48m (10%)
  • capital goods n.e.s., down $24m (5%).

Partly offsetting these falls was telecommunications equipment, up $72m (7%).

Intermediate and Other Merchandise Goods

  • In trend terms, imports of intermediate and other merchandise goods rose $99m (1%) to $10,753m.
  • In seasonally adjusted terms, imports of intermediate and other merchandise goods rose $459m (4%) to $11,058m.

The main components contributing to the rise in seasonally adjusted estimates were:

  • processed industrial supplies n.e.s., up $188m (6%)
  • fuels and lubricants, up $139m (4%)
  • parts for transport equipment, up $125m (12%).

Non-Monetary Gold

  • In trend terms, imports of non-monetary gold rose $54m (8%) to $710m.
  • In original and seasonally adjusted terms, imports of non-monetary gold rose $142m (23%) to $750m.

Imports of Services

In trend terms, services debits rose $30m to $7,857m.

In seasonally adjusted terms, services debits rose $23m to $7,854m.

The main component contributing to the rise in seasonally adjusted estimates was transport, up $48m (3%).

Partly offsetting this rise was maintenance and repair services n.i.e., down $25m (44%).

In seasonally adjusted terms, tourism related services debits fell $15m to $4,533m.

In seasonally adjusted terms, total services debits contributed 23% of total goods and services imported.

BALANCE ON GOODS AND SERVICES

  • In trend terms, the balance on goods and services was a surplus of $1,056m in May 2018, an increase of $83m on the surplus in April 2018.
  • In seasonally adjusted terms, the balance on goods and services was a surplus of $827m in May 2018, an increase of $355m on the surplus in April 2018.

SELECTED COMMODITIES

Unit values in this publication are presented in Australian dollar terms. Movements in the unit values for some commodities incorporate movements in the United States dollar prices reported to Home Affairs and movements in the Australian dollar to United States dollar exchange rate.

On an international merchandise trade basis, in original terms (noting the footnote in the above table), between April and May 2018 the largest movements recorded for the following selected commodities were:

Iron ore lump, down $6m, with quantities up 4% and unit values down 4%. Exports to:

  • China (excluding SARs and Taiwan) fell $41m (4%), with quantities up 2% and unit values down 6%
  • India rose $32m, following no exports in April 2018.

Iron ore fines, up $222m (6%), with quantities up 8% and unit values down 2%. Exports to:

  • China (excluding SARs and Taiwan) rose $169m (5%), with quantities up 9% and unit values down 3%
  • Japan rose $82m (43%), with quantities up 40% and unit values up 2%
  • India fell $33m, with no exports in May 2018.

Hard coking coal, up $535m (27%), with quantities up 25% and unit values up 1%. Exports to:

  • China (excluding SARs and Taiwan) rose $327m (70%), with quantities up 68% and unit values up 1%
  • Japan rose $184m (68%), with quantities up 75% and unit values down 4%.

Semi-soft coal, up $151m (20%), with quantities up 20%. Exports to:

  • the Republic of Korea rose $40m (28%), with quantities up 20% and unit values up 7%
  • Vietnam rose $39m, following no exports in April 2018
  • China (excluding SARs and Taiwan) rose $35m (43%), with quantities up 56% and unit values down 9%
  • Taiwan rose $34m (97%), with quantities up 90% and unit values up 4%.

Thermal coal, down $93m (5%), with quantities down 7% and unit values up 2%. Exports to:

  • China (excluding SARs and Taiwain) fell $160m (30%), with quantities down 30%
  • Philippines fell $26m, with no exports in May 2018
  • India rose $54m, with unit values down 1%
  • the Republic of Korea rose $36m (19%), with quantities up 20% and unit values down 1%.

Liquefied natural gas (LNG), down $114m (4%), with quantities down 7% and unit values up 4%.

Australian Bureau of Statistics, “5368.0 International Trade in Goods and Services. May 2018“, 4 Jul 2018 (11:30 AEST) More

flag_australia AU: Retail Trade, Australia, May 2018. Jun 2018

Press Release Extract [au_retail]

retail_20170403

Australian retail turnover rose 0.4 per cent in May 2018, seasonally adjusted, according to the latest Australian Bureau of Statistics (ABS) Retail Trade figures.

This follows a 0.5 per cent rise in April 2018.

“Department stores (3.9 per cent) led the rises,” said Ben James, Director of Quarterly Economy Wide Surveys. “There was also a strong result in clothing, footwear and personal accessories, which rose 2.2 per cent. Both industries were able to rebound after unusually warm weather impacted April sales.”

There were also rises in food (0.3 per cent) and household goods (0.1 per cent). Cafes, restaurants and takeaways led the falls (-1.0 per cent), whilst other retailing also fell (-0.1 per cent).

In seasonally adjusted terms, there were rises in New South Wales (0.5 per cent), Queensland (0.4 per cent), South Australia (1.1 per cent), Victoria (0.2 per cent), Tasmania (1.5 per cent), and the Northern Territory (0.4 per cent). Western Australia, on the other hand fell (-0.5 per cent) in seasonally adjusted terms, whilst the Australian Capital Territory (0.0 per cent) was relatively unchanged.

The trend estimate for Australian retail turnover rose 0.3 per cent in May 2018 following a rise (0.3 per cent) in April 2018. Compared to May 2017, the trend estimate rose 2.8 per cent.

Online retail turnover contributed 5.6 per cent to total retail turnover in original terms in May 2018, a rise from 5.4 per cent in April 2018. In May 2017 online retail turnover contributed 3.9 per cent to total retail.

Australian Bureau of Statistics, “8501.0 Retail Trade, Australia. May 2018“, 4 Jul 2018 (11:30 AEST) More

flag_europe EU: IHS Markit Eurozone Composite PMI. Jun 2018

Press Release Extract [eu_psi]

Key findings:

  • Final Eurozone Composite Output Index: 54.9 (Flash: 54.8, May Final: 54.1)
  • Final Eurozone Services Business Activity Index: 55.2 (Flash: 55.0, May Final: 53.8)

eu_psi_20180704

The eurozone economy regained some traction at the end of the second quarter. Rates of expansion in output and new business accelerated, although failed to fully recover the momentum lost earlier in the year. The main impetus was provided by the services economy, which saw growth accelerate to a four-month high, offsetting a further waning in the pace of increase in manufacturing production.

The final IHS Markit Eurozone PMI® Composite Output Index posted 54.9 in June, up from 54.1 in May and the earlier flash estimate of 54.8. However, the average reading over the second quarter as a whole (54.7) was the weakest registered since the final quarter of 2016.

National PMI data saw Ireland top the output growth league table, with economic activity rising at the fastest pace in five months. Rates of increase also picked up in Germany, France and Italy. Third- placed Spain was the only nation to see its rate of expansion decelerate (to a 17-month low).

The trends in euro area new business followed a similar pattern to output. New orders increased at a faster pace, with accelerations seen in Germany, France, Italy and Ireland. The mild improvement in demand growth partly reflected a recovery after an unusually high number of holidays depressed activity and new order inflows in May. The latest increase in new business was sufficiently robust to test capacity, with backlogs of work rising for the thirty-seventh successive month.

Recent surveys have nonetheless seen increased company reports of conditions slowing compared to earlier in the year. In some cases this has been due to concerns about rising trade worries, political uncertainty and the impact of ongoing capacity constraints on the pace of economic expansion in the coming months. This was reflected in the trend in business optimism, which dipped to a 19-month low.

June saw further job creation, with the rate of expansion remaining solid and picking up slightly compared to the prior survey month. Employment rose in all of the nations covered, with growth improving in Germany, France and Ireland.

Price pressures increased at the end of the second quarter. Input costs rose to the greatest extent in five months. This fed through to higher selling prices, which increased at the quickest pace since February.

Services

The performance of the eurozone service sector improved at the end of the second quarter. Rates of expansion in business activity, new orders and employment accelerated, while business optimism ticked higher for the first time in four months.

The final IHS Markit Eurozone PMI® Services Business Activity Index posted a four-month high of 55.2 in June, up from May’s 16-month low of 53.8 and the earlier flash estimate of 55.0. The index has signalled expansion in each of the past 59 months. However, the average reading over the second quarter as a whole (54.5) was down from the opening quarter (56.4) and the worst outcome in one-and-a-half years.

Output growth strengthened across the ‘big-three’ euro area service economies in June. Rates of expansion hit four-month highs in Germany and Italy, and a two-month high in France. Ireland recorded the fastest increase of all the nations covered, while third-placed Spain was the only one to see a growth deceleration (to a seven-month low).

Eurozone services new business also rose at the fastest pace for four months in June, with rates of expansion picking up in all of the nations covered bar Spain. This was sufficient to maintain pressure on capacity, leading to a rise in backlogs of work for the twenty-fifth month in a row. Job creation accelerated to a two-month high in response, with sharper increases registered in Germany, France and Ireland.

Growth of output, new orders and backlogs had a mildly positive impact on business confidence†, which improved slightly for the first time in four months during June. That said, the overall degree of business optimism was still the second-weakest seen over the past ten months.

Price pressures crept higher at the end of the second quarter. Input price inflation remained strong and accelerated to an 86-month high. Companies reported higher fuel and staff costs. Part of the increase in input prices was passed on in the form of higher output charges, which rose to one of the greatest extents in the past decade.

Comment: Chris Williamson, Chief Business Economist at IHS Markit

‘Eurozone growth regained momentum in June, rounding off a respectable second quarter performance, for which the survey data point to GDP rising by just over 0.5%. June also saw new orders and employment growth perk up, suggesting rising demand continues to motivate companies to expand capacity. Firms’ costs and average selling prices for goods and services are meanwhile rising at rates close to seven-year highs, which will likely feed through to higher consumer price inflation in coming months. The upturn in the pace of economic growth and resurgent price pressures adds support to the ECB’s view that stimulus should be tapered later this year, but the details of the survey also justify the central bank’s cautious approach to policy. In particular, a weakening in business optimism to the lowest for over one-and-a-half years reflects intensifying nervousness about the outlook for the economy, notably in manufacturing, as trade-war talk escalates. Service sector companies – generally less affected by international trade – are more upbeat about the year ahead, though less so than earlier in the year as domestic political issues once again add to uncertainty about the outlook. With many service companies – notably transport – dependent on a healthy manufacturing sector, any downturn in trade could soon spill over to the service sector.’

IHS Markit, “Eurozone Composite PMI. Jun 2018“, 4 Jul 2018 More

flag_europe EU: Quarterly Sectoral Accounts: Households. Q1/2018

Press Release Extract [eu_hh]

The household saving rate in the euro area was 12.0% in the first quarter of 2018, compared with 12.2% in the fourth quarter of 2017.

The household investment rate in the euro area was 9.0% in the first quarter of 2018, compared with 8.9% in the previous quarter.

eu_hh_20180704

Eurostat, “First release: Quarterly Sectoral Accounts: Households. Q1/2018“, 4 Jul 2018 More

flag_europe EU: Quarterly Sectoral Accounts: Business. Q1/2018

Press Release Extract [eu_bis]

In the first quarter of 2018, the business investment rate was 23.1% in the euro area, compared with 22.9% in the previous quarter.
The business profit share in the euro area was 40.6% in the first quarter of 2018, compared with 40.8% in the fourth quarter of 2017.

eu_invest_20180704

Eurostat, “Business investment rate up to 23.1% in the euro area, Business profit share down to 40.6% – Q1/2018“, 4 Jul 2018 More

flag_japan Japan update

Nikkei Japan Services PMI. Jun 2018

Press Release Extract [jp_psi]

Key points:

  • Output encouraged by faster growth in new business…
  • …but employment rises at slower pace
  • Margins come under pressure amid rising fuel prices

jp_psi_20180704

Japanese service sector output increased at a quickened pace in the final month of the second quarter, with stronger growth in new business supporting the upturn in activity. At the same time, backlogs of work increased amid weaker growth in employment.

Meanwhile, profit margin erosion was evidenced by input costs rising faster than output prices.

The headline index from the survey – the seasonally adjusted Business Activity Index – registered 51.4 in June, up from 51.0 in May, thereby indicating a stronger pace of output expansion. That said, despite a faster rate of increase, the latest rise in service sector activity was softer than the average recorded across the current 21-month sequence of expansion.

Similarly, goods producers expanded production at an accelerated pace in June. In turn, the Nikkei Composite Output Index rose to 52.1 in June, from 51.7 in May, to signal a stronger improvement in private sector business activity.

Panellists mentioned that new product launches and greater order book volumes had underpinned the rise in output during June. The increase in new work was moderate overall and stronger than the 20-month low observed in May. The rise in sales was attributed to new project start-ups and new client acquisitions.

Meanwhile, order book volumes increased across the manufacturing sector, albeit to a marginally weaker extent. That said, the pace of expansion was stronger than that of the services economy.

To manage higher workloads, firms recruited additional staff during the latest survey period, extending the current period of job creation to 18 months. There were some reports that new store openings had supported the expansion in employment. However, the increase in staff levels was only marginal and the softest since February.

The combination of faster new business growth and slower staff recruitment led to a rise in outstanding business during June. This contrasted with the modest reduction in backlogs observed in May. That said, the rate of accumulation was only marginal.

An improved pace of job creation was also observed in the manufacturing sector, however this did not prevent a further month of increased outstanding business.

Input costs continued to rise during June, thereby sustaining a trend which has been apparent since November 2012. Increased transportation and labour costs were cited as factors driving operating expenses. Furthermore, the rate of inflation was solid and accelerated to a three-month high.

Rising cost burdens encouraged firms to raise selling charges. However, the rate of increase was mild and noticeably outpaced by that of input costs, signalling pressures to service sector profit margins.

Likewise, faster input price inflation in the manufacturing sector contributed to steeper hikes in selling charges.

Lastly, service providers remained optimistic towards future output in June. Forecasts of stronger demand and Olympic-Games related business were cited as reasons to be confident.

Comment: Joe Hayes, Economist at IHS Markit

‘Growth in Japan’s crucial service sector was sustained during June. That said, PMI data poses the question as to whether the business cycle has finally plateaued in Japan. The latest survey indicates that output has expanded at a broadly similar pace over Q2 as that seen across Q1, therefore suggesting the likelihood of another disappointing GDP number. However, weak client demand seen in May was reversed during the latest survey. This should support business activity, at least in the short-term. That said, with employment growth having slowed in each of the past three months, the potential for firms to meet any further upswing in demand could be impacted by staff shortages and skills mismatches.’

IHS Markit, “Nikkei Japan Services PMI. Jun 2018“, 4 Jul 2018 More

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flag_china China update

Caixin China General Services PMI. Jun 2018

Press Release Extract [cn_psi]

Key points:

  • Output expands at quicker rates at manufacturers and service providers
  • Staffing levels rise further at services companies, but continue to decline at goods producers
  • Sharper rises in input costs

cn_psi_20180704

Latest Caixin China Composite PMI™ data (which covers both manufacturing and services) showed that Chinese business activity continued to expand at the end of the second quarter. Notably, the Composite Output Index rose from 52.3 to 53.0 in June, to signal a solid rate of growth that was the steepest recorded since February.

The improvement in the headline Composite Output Index was supported by stronger growth across both the manufacturing and service sectors. Services activity expanded at the quickest rate for four months in June, as highlighted by the seasonally adjusted Caixin China General Services Business Activity Index rising from 52.9 in May to 53.9. At the same time, growth in manufacturing production also improved to a four-month record, but remained moderate and weaker than that seen in the service sector. However, rates of increase across both sectors remained weaker than those seen at the start of the year.

As was the case for output, new business continued to rise at both manufacturing and services companies during June. While new order growth across the goods-producing sector was little-changed from the previous month and modest, service providers signalled a slightly stronger rate of expansion. According to panellists, new product offerings and improved marketing strategies helped to boost new work. At the composite level, new business rose at a modest pace that matched that seen in May.

After stabilising in the prior two months, composite employment fell fractionally during June. Sector data indicated that a steeper rate of job shedding at manufacturing companies offset a slightly stronger rise in service sector staff numbers. Notably, goods producers registered the quickest reduction in headcounts for nearly one year. In contrast, services companies hired additional employees at the quickest rate since last August amid reports of rising business requirements.

June data pointed to divergent trends with regards to backlogs of work, with manufacturing firms signalling greater amounts of unfinished business and services firms a decline. That said, the rate of accumulation at goods producers was unchanged from the previous month and moderate. Meanwhile, outstanding workloads fell marginally across the service sector for the second month in a row. Backlogs at the composite level therefore rose only slightly at the end of the second quarter.

Chinese companies signalled a stronger increase in input costs during June. The rate of input price inflation reached a five-month high across the manufacturing sector, while services companies noted the steepest increase in costs since February. Panel members widely commented on greater prices for raw materials, transportation and staff in the latest survey period. Overall, input costs at the composite level rose at the sharpest rate for four months.

Higher cost burdens prompted companies to increase their prices charged again during June. Factory gate prices rose at a solid pace that was the quickest recorded since last September. Services companies meanwhile raised their charges to the most marked extent for three months, though the rate of inflation remained marginal overall. At the composite level, selling prices increased at the fastest pace since last September.

Business sentiment towards the 12-month outlook for output dipped across both monitored sectors in June. Although service providers expressed a stronger degree of optimism than manufacturers, confidence remained weaker than the historical trend.

Comment: Dr. Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group

“The Caixin China General Services Business Activity Index stood at 53.9 in June, rising significantly from the previous month. The employment and new business indices both climbed moderately, pointing to a positive trend in the service supply and demand sides. Input costs rose more than prices charged, putting pressure on service providers‘ confidence. The index of business expectations, a gauge of companies’ confidence towards the 12-month outlook, dipped from a recent high seen in May. The Caixin China Composite Output Index, which covers both manufacturers and service providers, stood at 53.0 in June, rising significantly from a month earlier, suggesting a stable economy with a positive outlook. The latest surveys also showed stronger increases in input costs and output charges, which put pressure on margins. The indices for new orders and work backlogs were unchanged from the previous month’s readings. The employment index dropped into contraction territory, indicating a deteriorating employment situation. The index of expectations regarding future output also fell, suggesting less optimism across the manufacturing and service sectors. It’s doubtful that China’s economic growth will maintain stable amid tightening credit and regulations.’

IHS Markit, “Caixin China General Services PMI. Jun 2018“, 4 Jul 2018 More

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