The Monday Report

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By Greg Peel

Friday was global manufacturing PMI day and Australia kicked off the show with a surprise jump to 52.9 in June from 47.7 in May – the first expansionary result since February. As expected, China saw a fall to a barely growing 50.9 (52.0) indicating Beijing's monetary policy tightening measures are having their desired effect.

The eurozone saw a fall to 52.0 (54.6) and the UK to 51.3 (52.0), with the UK's 21-month low highlighting the impact of austerity measures in place across the EU. The US nevertheless marked a surprise jump to 55.3 (53.5) when economists had expected a fall to 51.5. Despite weak predictions the US number is indicative of a bounce-back from the big May drop, brought about by factories remaining idle with parts unavailable from Japan. Japan has quickly turned around, as its May industrial production number released last week showed, so the US has also experienced a recovery as a result.

Vehicle sales were most heavily impacted indirectly in the US by the tsunami, and while increasing 7% in June are still in recovery mode with American marques leading the charge. Construction spending, however, fell 0.6% in May after a similar fall in April. And the fortnightly consumer sentiment gauge from Michigan Uni showed a bigger than expected fall to 71.5 from 74.3.

So the data were not all rosy for the US on Friday, but the manufacturing PMI is considered one of the most important releases of each month and carries significant weight. This is despite manufacturing representing only 20% of US output. Most recent US economic data have been weak, leading to renewed fears of a double-dip, so any signs of a turnaround at a time when the Greek issue is supposedly off the radar once more should only stir up further bullishness.

The only problem was that Wall Street had such a strong run in the last days of June, exaggerated by window dressing, that there was always a chance the first day of July would see a drop. Given the holiday long weekend, one might also have assumed a lack of interest as weary traders headed for the beach.

Well stuff that for a theory – the Dow rallied 168 points or 1.4% and the S&P gained 1.4% to 1339, wiping out all of its June losses in the best week on Wall Street for two years. Wall Street is now on its own, with no more QE2 behind it, yet the early signs are very positive. 

Commodity markets were nevertheless less enthusiastic with London, the centre for base metals and Brent crude, reflecting on the wider and weaker range of PMI results as well as strong trading in the prior sessions. Base metals were mostly around a percent weaker, with the exception of copper. Copper has been quietly forging its way ahead on expectations of Chinese restocking meeting tighter supply. Brent crude was down US71c to US$111.77/bbl while West Texas fell US67c to US$94.75/bbl.

Currency markets also decided to take a breather after a tumultuous week of Greek-related action. The euro was steady and the US dollar index slipped slightly to 74.30, although the Aussie Battler still posted another 0.4% gain to US$1.0769 on Australia's solid PMI.

Gold is currently bouncing around the 1500 mark looking for direction after the easing of European fears with a lack of physical demand out of Asia threatening further downside. Gold fell US$13.10 to US$1486.50/oz on Friday and silver dropped 2.5%.

The SPI Overnight jumped 48 points or 1.05%.

Following on from Friday's manufacturing release, China released its non-manufacturing PMI on the weekend which showed a drop to 57.0 from 61.9. The other global centres will all release services and construction PMIs across the week.

The highlight of Australia's week will be the unemployment numbers on Thursday, which for once come out before the US number on the Friday instead of a week afterward. Recent weakness suggests a possible jobless increase. Today's ANZ job ads series will provide a further clue, while today's TD Securities inflation gauge will also be closely watched ahead of Tuesday's RBA rate decision. 

We also have building approvals and retail sales today, and the services PMI and trade balance tomorrow, all ahead of the RBA. Economists are not expecting a rate change at this stage, with August still the tip although weaker recent data (PMI notwithstanding) are encouraging doubts to creep in. Thursday also sees the construction PMI along with employment to wrap up the week.

It's the Fourth of July holiday in the US tonight ahead of an important week culminating in the jobs numbers on Friday. Tuesday sees factory orders, Wednesday the services PMI along with the ADP private sector unemployment number, and Thursday sees chain store sales. The US will also be focusing heavily on the ongoing debt ceiling deliberations, with President Obama clearly now losing his patience.

The ECB is widely expected to raise its cash rate by 25bps on Thursday to 1.5% given the hints already dropped by Jean-Claude Trichet and the resolution in Greece. The euro is reflecting such expectation. The Bank of England is expected to leave its 0.5% rate unchanged at the same time.

Thursday also sees the release of New Zealand's quake-impacted March quarter GDP. But more importantly at the end of this week the Canterbury Quakes will play the Queensland Floods in a Super Rugby dream final in Brisbane, at a stadium that was underwater earlier in the year.

In what is now a quiet period for Australian companies ahead of the August reporting season, the local stock highlight this week will be the new-look CSR's ((CSR)) AGM on Thursday. On Monday week, Alcoa's result kicks off the June quarter result season in the US which will determine whether or not we're heading back up again.

Rudi will appear on Lunch Monay on Sky Business this Thursday at 12pm. 

For further global economic release dates and local company events please refer to the FNArena Calendar.

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