ASX at the close

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ScreenHunter_31 Jun. 04 16.42

Stan Shamu for Chris Weston, Chief Market Strategist at IG Markets

It has been a choppy day for global markets with plenty of macro-economic activity to react to. In US trade, focus was pinned on the FOMC meeting minutes which were perhaps not as revealing as many expected, but still managed to give market participants some insight on the mechanics of rate normalisation. Overall, due to the lack of fresh insight, analysts mainly feel this implies the minutes were more dovish than anything else. The market seems to have been positioned for a hawkish shift in sentiment. In fact, the minutes showed the Fed continues to show concern about growth rather than inflation.

On the inflation front, whilst acknowledging a tick up in inflation, the Fed feels the medium term projection for inflation will actually be lower. Perhaps the recent surge in inflation was viewed as temporary as tapering stays on track. The Fed also discussed addressing excessive risk-taking and associated financials imbalances. They also showed concern that tightening could derail the recovery. They used the line ‘monetary policy needed to continue to promote the favourable financial conditions required to support the economic expansion’. Many judged that slack remained elevated, and a number of them thought it was greater than measured by the official unemployment rate.

Overall the greenback lost a bit of ground on the minutes with the US dollar index dipping below 80. Perhaps Fedspeak later today from Fischer, George, Lockhart and Evans will offer further insight.

Australia unemployment hits ten year high

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There has been a bit of activity on the AUD front with some local and regional data impacting trade. Australian jobs numbers for June saw the headline unemployment rate rise to 6%, higher than estimates of 5.9%. However the number of jobs added was slightly higher than expected at 15,900. However, all jobs created were part time as full time jobs actually moved backwards.

Analysts feel the unemployment rate might be stuck around that 6% mark for a while as population growth remains firm along with the participation rate. In terms of implications on the RBA, the general consensus is it won’t have much of an impact as the central bank had already flagged the unemployment rise. Having said that, the swaps market is pricing in around a 50% chance we’ll see a rate cut this year.

AUD choppy following data

Meanwhile China released its June trade balance figures which came in at a much lower than expected $31.6 billion, well below estimates of $36.95 billion. Exports were only a touch higher at 7.2% while imports showed a solid bounce to 5.5%.

Unfortunately both readings also missed estimates but it seems it was still enough to hit the sweet spot for investors. A slower-than-expected recovery could be interpreted as a sign further stimulus might be required.

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Today’s releases put a bit of a dampener on the AUD which dipped back below 0.9400 against the greenback. The pair has been looking vulnerable in recent times but just continues to find buyers at lower levels. I wouldn’t be surprised if it holds on to the 0.9400 handle.

Indonesia leads the region

Despite the mixed economic readings, equities around the region have mostly remained firmer. It seems the improvement in China’s exports and imports was enough to keep most regional markets afloat. Equities in Jakarta have rallied to one year highs as the market speculates a Jokowi election victory with the rupiah also surging. This has also fed some positive momentum through to other emerging markets.

The Nikkei has lagged the region after greenback weakness saw USD/JPY extend its losses and struggle through Asian trade.

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Firmer open for Europe

Looking ahead to European trade, we are eyeing a firmer start for the major bourses. There is a bit of activity on the economic front, with the BoE meeting being the highlight. The pound continues to hold onto its strength and could be testing last week’s highs against the greenback in the near term. Any hawkish lines could see cable knock through last week’s highs. We also have UK trade balance and French/Italian industrial production due out. There are also some reports suggesting Indigo is in talks with Airbus for a 200 plane order worth around $20.6 billion. This could give Airbus shares a kicker today.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.