- In June markets were influenced by political developments in the UK and US and more hawkish commentary from central bankers suggesting that soft inflation is only transitory.
- European equities lost 2.8% in June after two Italian banks were bailed out by the Italian government and ECB President Draghi hinted at tighter monetary policy.
- The UK election resulted in a hung parliament creating additional uncertainty as to how the Brexit negotiations will unfold.
- US technology stocks, which had enjoyed solid price rises, gave back some of their recent gains with the NASDAQ Composite Index down 0.9% in June.
- Chinese activity indicators were a little softer but still remain at strong levels.
- Australian employment data was stronger in the past month and the unemployment rate fell to the lowest rate since February 2013.
In Australia, employment rose by 42,000 jobs in May which was above expectations. The unemployment rate fell from 5.7% to 5.5%, which was the lowest rate since February 2013. The employment report also showed a pick-up in full time jobs and hours worked, both of which have been soft in recent months. Despite the rise in the number of people employed and recovery in the total number of hours worked, the level of underemployment – those people working but who want more hours – has remained elevated and this is keeping wages growth at very low levels.
Economic data was relatively good in June with no major surprises which meant that investors were mainly focused on speeches by central bankers and on political developments in the United States and United Kingdom.
In the US, as expected the US Federal Reserve lifted interest rates for the second time this year. Speeches by various Fed officials suggest that notwithstanding core annual inflation which was just 1.4% in May, and well below the Fed’s 2.0% per annum target, they believe that the recent softness is transitory.
In Europe, survey-based measures of activity have remained strong, with indicators such as consumer confidence rising to fresh 16-year highs and Germany’s IFO business climate index making a new post-financial crisis high. At a recent conference in Portugal, European Central Bank President Mario Draghi said all the signs now point to a strengthening and broadening recovery in the Euro area which was interpreted by investors as a signal that the ECB could soon flag its intention to begin withdrawing ultra-easy monetary policy conditions.
China’s activity indicators were more or less in line with recent trends showing factory output and retail sales growing at a steady pace in May but fixed asset investment slowing, reinforcing views that the economy may be losing some momentum as lending costs rise and the property market cools.
In Japan, core inflation was 0.4% year on year in May which was the fifth straight month of price rises but still well below the Bank of Japan’s ambitious 2% per annum target.
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