These are still good growth rates – roughly about trend over both years. And you know what; there is nothing wrong with trend growth. This is probably why the chief economist at the IMF, Olivier Blanchard, felt compelled to qualify the forecasts.
"People feel that the world economy has darkened a lot … the trend is a bit worse than the forecast suggests," he said. I’m sure the growing sense that the entire financial system is corrupt to the bone (from the ratings of CDOs, etc; to price fixing – the lot) doesn’t help sentiment either. Anyway there are three assumptions underpinning the trend growth forecasts: 1) That action is taken to ease financial conditions in Europe; 2) That the US doesn’t fall off the fiscal cliff and; 3) That emerging market policymakers stimulate growth.
Then of course there was lots of chatter about the usual downside risks which the IMF felt had intensified.
To top that off, US data wasn’t great. Well, retail sales weren’t great to be specific, but the Empire manufacturing index surprised with a solid spike to 7.4 from 2.29 (average is about 10). Retail sales however fell 0.5 per cent in June which was much weaker than the 0.2 per cent expectation. So following on from a very strong session on Friday, the S&P500 fell 0.2 per cent (1353), the Dow was 0.4 per cent lower (12727) and the Nasdaq was off 0.4 per cent. The SPI however managed to lift a touch (4074) and European stocks were mixed – the Dax up 0.1 per cent, the CaC off 0.03 per cent while the FTSE was 0.1 per cent lower.
Similarly moves on most commodities were small – gold off a few bucks to $1589, copper was down 0.5 per cent. The main exception was softs like corn which is finding support from the US drought. Then there was crude which pushed 1.1 per cent higher to $88.2 on WTI. Maybe that’s because of rising stimulus hopes, maybe it's because the IMF are still forecasting solid growth over the next couple of years – the old solid growth more free money one-two. Or maybe – and this is the G20's view – it’s because prices are being rigged. Well they didn’t actually say they are being rigged, they said the crude market was vulnerable to Libor-style rigging given that prices are set on a system of trust. That is, banks voluntarily report what prices they pay for oil and then reporting companies (like Platts or Argus) use that to determine the benchmark price that you and I (aka 'the muppets’) see every day.
On the rates side, US treasuries pushed a little higher (yields were lower) but there wasn’t a great deal of action. The 10-year yield sits at 1.47 per cent, the 5-year at 0.6 per cent and the 2-year is at 0.23 per cent. Similarly forex markets didn’t see a great deal of action – Australian dollar and euro were up 20 pips or so to 1.0248, while the euro was up to 1.2272. Sterling was otherwise up 80 pips and yen is at 78.85.
Bits and pieces otherwise. The Spanish 10-year bond yields pushed about 18 basis points higher to 6.78 per cent, while Italian yields were little changed at 6.03 per cent (high of 6.09 per cent). On the data, eurozone exports were up 0.3 per cent in May as exports rose 0.2 per cent (6 per cent year-on-year) and imports fell 1.9 per cent (flat year-on-year). There’s not too much else to report – US business inventories rose 0.3 per cent in May as sales fell 0.1 per cent.
The data today kicks off with NZ CPI. This is certainly worth watching as there can be some similarities between price pressures in NZ and Australia. Then at 1130 AEST we see Australian motor vehicle sales and the RBA’s minutes. I don’t think the minutes are truly that useful at this point. Every meeting is live given the RBA Board base policy decisions on emotion. It will depend on the news flow and if things ‘feel’ bad prior to the August meeting whether they’ll cut – especially if CPI is soft. Unfortunately we can’t really get a sense of that in today’s minutes.
Tonight, keep an eye out for UK CPI, the German ZEW survey, US CPI and industrial production and of course Ben Bernanke’s testimony to the US Senate.
Adam Carr is a leading market economist. See Business Spectator's glossary for definitions of technical terms used in SCOREBOARD articles.
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