US dollar rockets on hawkish Fed

  • A mixed week for equity markets with a strong lead from US equity markets, as investors shook off concerns about a looming recession, whilst Europe remained under pressure with a looming central bank rate Aussie investors preferred the US’s lead.
MARKETS
  • The gold price fell sharply after the US dollar rocketed higher as economic conditions between US and the rest of the world continued to diverge and the US central bank minutes reaffirmed their inflation fighting The move in the US dollar also saw the Aussie dollar fall to levels not seen since Q2 2020.
  • The oil price ended the week lower following a sharp fall earlier in the week on significant demand concerns, before mounting a small comeback on tight global supply concerns.
ECONOMICS
  • The Reserve Bank of Australia raised the cash rate by 0.50% to 1.35%, in line with expectations, at its July No real surprises in their statement – i.e. committed to fighting inflation whilst keeping a watchful eye on economic trends.
  • Australia’s trade surplus widened to a record high of $15.97 billion in May, from an upwardly revised April figure, easily beating market forecasts of a surplus of $10.73 billion. It was the largest trade surplus since January, with exports increasing by 5% (coal and LNG) and imports increasing at 5.8% (fuel and lubricants).
  • Building approvals rose by almost 10% in May, well above expectations, but sit more than 20% lower over the year. Private apartments drove the increase, whilst private detached housing fell. WA, TAS, and QLD saw the strongest gains.
  • The value of new housing lending excluding refinancing surprised on the up, growing by 1.7% in May, against market expectations of a 2.5% fall. TAS and VIC drove the increase. New housing lending for owner occupiers rose by 2.1% in the month but is down almost 10% over the year. Only 11.9% of new lending in the month was at fixed rates, which means June and July rate rises have hit most of the new borrowings.
  • Australian job vacancies rose by 8% in the 3 months to May 2022, with 253,000 more vacancies than pre-Covid. NSW and VIC recorded the biggest increases, with interstate migration not helping. Some immigration could help right about now.
  • Australian private sector credit rose by 8% in May, following a 0.9% increase in April, with business credit the biggest contributor and now showing fastest annual rate of growth since October 2008. Housing credit maintained its April pace of growth whilst personal credit showed a small increase to remain lower than its level a year ago.
  • A key US manufacturing indicator fell sharply in June, coming in below market expectations, and points to the slowest growth in factory activity since June 2020. New orders contracted for the 1st time in 2 years whilst employment declined further. Supplier deliveries also slowed.
  • Germany posted its 1st monthly trade deficit in over 30 years in May, due to a 28% rise in its import bill. Exports also suffered as supply chain constraints and soaring energy prices constrained key manufacturing sectors.
  • A report indicated that the European central bank intends to end a long running subsidy for the banking sector that has allowed banks to pad their profits simply by parking their excess liquidity at the central The unconfirmed report saw European government bond yields rise (ie. prices fall), particularly in the periphery.
  • The annual inflation rate in the Euro area increased to a new record high of 8.6% in June, coming in above market expectations, whilst the European central bank president confirmed that a 0.25% rate rise should be expected at their upcoming July meeting.
POLITICS
  • China-US tensions rose after the US government blacklisted 5 Chinese companies for allegedly helping Russia’s military, whilst NATO (in its infinite wisdom) decided to single out China as a threat for the first time. Not sure more saber-rattling is what the world needs right now.
  • US President Biden is reportedly considering a near-term move to roll back some of the US tariffs on Chinese consumer goods in moves to fight inflation. At the same time, the US is apparently pushing the Netherlands to ban one of the world’s largest chip componentry providers (ASML) from selling mainstream technology to China that’s essential in making a large chunk of the world’s chips. Giveth and taketh.
  • French President Macron is under increasing pressure to introduce a “windfall” tax on oil, gas, and transport giants to fund his bill aimed at protecting consumers’ purchasing power. The move comes after starving these sectors/companies of investment for the last decade and then wanting to tax their profits further when things finally go their
  • UK Prime Minister Boris Johnson has quit after he dramatically lost the support of his ministers and most Conservative lawmakers but will stay on until his successor is chosen.