Chinese powerhouse still weak but rallying

Share Markets:

Sentiment in equity markets weakened on concerns over Greece, and also on the prospect of a Federal Reserve rate hike later this year.

Greece and its creditors remain in disagreement, raising concerns over default and an exit from the euro zone.

Meanwhile in the US, a strong jobs report on Friday reinforced expectations that a Federal Reserve rate hike was coming. The German DAX was down 1.2% and the FTSE100 fell 0.2%. US stocks fell to their lowest in two months - the S&P500 fell 0.7% and the Dow fell 0.5%.

Interest Rates: 

US 10-year treasury yields slipped overnight, but followed a jump on Friday on the back of non-farm payroll data.

After jumping 11 basis points on Friday, the US 10-year treasury yield fell 3 basis points to 2.38%. Concerns over Greece supported demand for safe-haven bonds.

Yields on 3-year Australian bond futures fell to 2.12% and on 10-year yields fell to 3.04%.

Foreign Exchange:

The US dollar index fell, losing all of its Friday gains.  A report claiming President Obama said that the strong dollar was "a problem" weighed on the currency, although the comment was later denied.

The euro was also boosted by positive economic data from Germany.  Meanwhile, the Australian dollar fell on the back of the non-farm payrolls report, but then recovered early this morning to trade just shy of 77 US cents.

Commodities:

Oil prices fell, following weak Chinese crude imports. Prices of other commodities rose including gold, recovering from a sharp decline on Friday.

Australia:

The AiG Performance of Construction index picked up from 47.0 in April to 47.8 in May. The index has risen from lows around 30 in 2011 and 2012 but is below its peak of 59.1 in late 2014.

China:

The pace of Chinese exports remained weak in May, declining 2.5% in the year, but improving from a 6.4% annual contraction previously.

Imports contracted 17.6% in the year to May, and would lift concerns over the strength Chinese domestic demand.

Europe:

German economic data overnight was better-than-expected and point to a slight strengthening in the economy over Q2. Industrial production rose 0.9% versus expectations for a 0.6% gain.

Additionally, exports jumped 1.9% in April.

Japan:

Japanese GDP grew 1.0% in the March quarter, above the previous estimate for 0.6% growth. Much of the upward revision was due to stronger business investment and inventories.

On an annualized basis, the economy grew 3.9%.

In other data, Japan's leading economic index picked up to 107.2 in April suggesting that Japan's accommodative monetary policy and the weaker yen may be gaining traction across the economy.

United States:

On Friday, non-farm payroll employment grew 280k in May, well exceeding expectations for a 226k gain. The unemployment rate however, ticked up from 5.4% to 5.5%.

If the US economy continues to print job gains at this pace, it would approach full-employment soon. The strength of the labour market continues to support the case for a rate increase by the Federal Reserve this year.   



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