This week, there was no overarching theme to the data. However, the general tenor of major releases continued the more bullish trend that started at the beginning of the year.
The RBA maintained their current 1.5% interest rate this week. Their policy announcement outlined a modestly growing economy:
As expected, GDP growth slowed in the March quarter, partly reflecting temporary factors. The Australian economy is expected to strengthen gradually, with the transition to lower levels of mining investment following the mining investment boom almost complete. Business conditions have improved and capacity utilisation has increased. Business investment has picked up in those parts of the country not directly affected by the decline in mining investment. At the same time, consumption growth remains subdued, reflecting slow growth in real wages and high levels of household debt.
Indicators of the labour market remain mixed. Employment growth has been stronger over recent months. The various forward-looking indicators point to continued growth in employment over the period ahead. Wage growth remains low, however, and this is likely to continue for a while yet. Inflation is expected to increase gradually as the economy strengthens.
The Australian economy continues to make the transition from one heavily dependent on business investment (which sharply increased in the early 00’s to supply China’s infrastructure buildout) to a more balanced economy, where consumer spending and exports provide more growth. The results are still muddled: employment is moderate and business is still trying to make the shift to more diverse growth sources. In other news, retail sales expanded .6% M/M and 3.2% Y/Y.
This week, the ECB released their latest meeting minutes, which contained an upbeat assessment of the EU economy:
For the euro area, growth in real GDP was solid and broad-based.
According to Eurostat’s latest estimate, real GDP had increased by 0.6%, quarter on quarter, in the first quarter of 2017, following 0.5% in the previous quarter. The broad-based economic expansion had been mainly driven by domestic demand on the back of sustained employment gains, higher real disposable income and favourable financing conditions.
The unemployment rate had declined to 9.3% in April, down from 9.4% in March and averaging 9.5% in the first quarter of 2017.
Looking ahead, survey-based indicators pointed to continued robust growth in the second quarter. The composite output PMI had stood at 56.8 in April and May, compared with 55.6, on average, for the first quarter of 2017.
The European Commission’s Economic Sentiment Indicator (ESI) had recorded 109.7 in April and 109.2 in May, after a first-quarter average of 108.0. The improved sentiment had been broad-based across sectors and both the PMI and the ESI currently stood above their respective historical averages. Moreover, trade and euro area exports were increasingly benefiting from the global recovery.
Data released this week confirms the improved outlook. Retail sales rose .2% M/M and 2.6% Y/Y. Sales were up in 3 of the 4 largest economies (Germany +2.3%, France +4.2% and Spain + 2.9%). Markit released their latest manufacturing and service sector numbers, with the former rising slightly to 57.4 and the latter moving lower .9 to 55.4. The internals of both were strong. Most importantly, the composite reading was a healthy 56.3. Overall, the EU has plenty to be happy about.
The only main news from Japan was Markit’s number, which decreased .7 to 52.4. However, new orders, production, and employment all increased. In fact, the employment number was the best reported in the last decade.
Markit also released their latest number for the UK. The headline manufacturing number dropped 2 points, receding to 54.3. The internals recorded a “broad-based slowdown.” The pace of new business growth was the weakest in a year, largely thanks to increased uncertainty. UK’s service index moved .4 points lower to 53.4. Uncertainty over Brexit was cited by respondents as a large problem. Finally, UK production was down .1% M/M and .2% Y/Y.