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Trade Surplus in Australia Surged $2.47 Billion After Coal Export Bounces

Australia's trade surplus has risen far more than expected after a recovery in coal exports. The trade balance rose to a surplus of $2.47 billion in May from a now revised $90 million surplus in April when coal exports had slumped from the impact of Cyclone Debbie.

Combined with recent upbeat reports on consumer and business spending, economic growth now looks likely to have picked up from the March quarter's disappointing 0.3% pace. 

 

On a seasonally adjusted basis, exports climbed by $2.58 billion, or 9% during the month, driven mainly by a 62% surge in the value of coal exports and a 39% jump in the value of LNG exports. Imports rose by $205 million, or 1% during the month, on a seasonally adjusted basis.

Shipments of liquefied natural gas (LNG) are also ramping up significantly as new projects come on line. Analysts at National Australia Bank predict the value of LNG exports will pass A$27 billion this year and near A$35 billion in 2018, overtaking coal as the second biggest earner.

Australia has been on track to overtake Qatar as the world's largest LNG exporter, but just this week the Gulf state announced plans to expand its output by 30%.

The West's three biggest energy corporations have expressed interest in helping Qatar with its ambition to produce 100 million tonnes of LNG annually, equivalent to a third of current global supplies in the next five to seven years.

 

Commodity exports were heavily impacted by Cyclone Debbie in late-March, which caused temporary production stoppages at several Queensland mines and widespread damage to rail lines.

The Australian dollar initially lifted on the news, rising to as high as 76.06 US cents, but has since given up the gains. At 1200 AEST, the local currency was trading at 75.92 US cents. 

 

 

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Asia Pacific Bank Outlook Revised by Moody’s to Stable

Moody’s added that 77% of bank outlooks in the region are now stable, an increase from 64% at the end of last year. Banks in China, Hong Kong, Singapore, Australia, New Zealand and Mongolia are mostly behind the increase in stable outlooks.

Improving operating conditions and a more positive credit cycle led Moody’s Investors Service to upgrade its outlook for Asia-Pacific (APAC) banks to stable from negative. 

 

Asset quality is stabilizing in most banking systems, as the negative credit cycle in many of the systems has proven to be shallow with a moderate economic upturn now evident in APAC, while commodities prices are relatively stable.

Commodity related problem loans have mostly peaked and it now expects relatively stable prices to support asset quality. Profitability will also recover in many markets because of lower credit costs and better net interest margins.

Other improvements highlighted by the agency include the return of foreign capital flows into emerging Asia. But it warned that corporate and household leverage remain elevated in some countries and rising property prices could amplify credit risks in the case of a major market correction.

Latent property related risks are more pronounced in Australia, China, Hong Kong, New Zealand, Malaysia and India, based on property price appreciation, the banks exposure level, or both.

 

 

 

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Despite Italian Banking Bailout the Euro Remains Upswing

The euro mostly held onto the gains despite the news that the Italian government was going to rescue two of the country's regional lenders at the tune of 17 billion euros. 

The two banks, Banca Popolare di Vicenza and Veneto Banca were forced to seek government aid after they failed to raise capital from investors in 2016. After reviewing their books, the ECB in April said they needed about €6.4bn of new capital, prompting a search for ways to bridge the gap.

 

Previously, Italy sought to rescue the lenders through a precautionary recapitalization, using a mix of state and private funds as well as debt and equity write downs to finance the removal of bad debts. The private sector balked at the plan.

Italian banking woes were seen as contained for now, given the positive political developments and the relative strength of the Eurozone economy.

EUR/USD traded around 1.1200 after the release and the 7 month high, set earlier this month at 1.1296, could be tested if EUR buying momentum and typical end of month USD selling gather momentum. 

German IFO posted a reading of 106.8 better than the consensus of 106.4 and the previous reading of 106.5, showing a continued optimistic view of Eurozone Business confidence.

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Unemployment Rate in Australia Declined to 5.5% Lowest in 4 Years

Unemployment rate in Australia fell to a lower than expected seasonally adjusted 5.5% in May from 5.7% in April, the Australian Bureau of Statistics said. It’s Australia’s lowest jobless rate in 4 years.

The number of people employed rose by 42,000, compared with an expected 10,000 rise. The number of people in full-time work increased by 52,100 in May, while those in part-time work fell by 10,100.

 

According to the bureau,  its seasonally adjusted workforce participation rate rose to 64.9% in May from 64.8% in April, and a consensus expectation of 64.8%.

The economy has added around 150,000 new jobs since January. Data supports the view that there is underlying strength in the economy even after Australian GDP grew at its slowest on year pace since 2009 in the first quarter.

CommSec chief economist Craig James said the positive employment trend would provide momentum for the economy, as May’s job creation follows almost 100,000 jobs being added across March and April.

The job market data now comes into line with upbeat business surveys and strong forward looking employment indicators.

 

RBA has its eye on the job market, but has indicated it will largely ignore the weak first quarter GDP data. Interest rates have been held at a record low since August last year and the RBA has indicated its preparedness to remain sidelined for some time yet as it allows inflation to rise slowly.

 

 

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Japan PPI Came at 0% the Weakest Result in 9 Months

This morning, the Japan producer price index came in flat at 0% and it represents the weakest PPI result in nine months. Already last week, the growth rate had been revised down to 0.3% from 0.5%. 

April machine orders just collapsed at -0.31% m/m while markets had estimated an increase of 0.5 percent. This data is often used as a proxy for the capital expenditure. 

Yen fell 0.06% to 110.27 despite weaker machinery orders data than expected. Japan reported core machinery orders for April slipped 3.1% month-on-month, well below the 0.5% gain seen and up 2.7% on year, also less than the 7.3% jumped expected. 

The Japanese economy has shown some improvement in the first quarter, but Final GDP was a major disappointment. First quarter GDP was revised downwards to 0.3%, compared to 0.5% in the preliminary GDP report. At the same time, the economy has posted growth for five consecutive quarters the first time that has occurred in over 10 years. 

Japan has benefited from a stronger global economy, notably the manufacturing and export sectors. However, domestic consumption remains sluggish, and household spending contracted 1.4% on year in April. The Bank of Japan will hold a policy meeting on Thursday, and is expected to maintain its ultra-loose monetary stance in order to prop up inflation and domestic demand. 

 

Given that the economy has strengthened, policymakers may be looking to exit current policy and analysts will be looking for nuances which could point to a more hawkish monetary stance. If the central bank does hint at a tighter policy, the yen could gain ground.

The Federal Reserve will meet on Wednesday and the markets have priced in a rate hike, which would be the second increase in 2017. The likelihood continues to hover around the 90% level, so it would be a shock if the Fed did not make a move.

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Euro Inched Lower Ahead Of ECB Rate Decision

European session, EUR has inched lower and is trading at 1.1240. In economic news, German Industrial Production bounced back in April with a strong gain of 0.8%, which beat the forecast of 0.6%. There was more good news from Eurozone Revised GDP, which improved to 0.6%, edging above the estimate of 0.5%. 

Today’s highlight is the ECB rate meeting, with the markets expecting the benchmark rate to remain at a flat 0.00%. The US releases unemployment claims, which is expected to drop to 241 thousand.

Most investors are focus on ECB, which holds it monthly rate meeting later in the day. The central bank is not expected to announce any changes to current monetary policy. The benchmark rate has been pegged at 0.00% since March 2016. As well, policymakers are unlikely to make any changes to the quantitative easing program, which ends in December. 

However, the euro could still move if there are any surprises in the rate statement or from Mario Draghi, who will hold a follow-up press conference. On Wednesday, the euro briefly lost ground on reports that the ECB was planning to downgrade its inflation forecast to 1.5% annually for 2017, 2018 and 2019. 

 

Earlier in the year, inflation reached the ECB’s target of 2.0%, but this didn’t last long, and the May figure of 1.4% was well of this goal. Mario Draghi has preached caution and patience, and will reluctant to tighten policy without stronger inflation levels. 

Still, with the euro-area economy showing improved growth in 2017, the markets would like to see the ECB at least acknowledge that the economic picture has brightened, and will be looking for a more hawkish tone from the central bank, such as a removal of the bias towards easing. 

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Unemployment Rate in Japan declined 2.8 Percent

The unemployment rate in Japan held at a multi-decade low in April as the ratio of jobs to applicants rose more than expected. Japan’s jobless rate held steady at March’s level of 2.8 per cent, at the lowest level since June 1994 for a third straight month, according to the Statistics Bureau. 

The job-to-applicant ratio inched higher to 1.48 from the previous month’s level of 1.45, marking the equal-highest level since March of 1974 and besting expectations of a more marginal rise to 1.46. 

 The latest readings continue to point to strong levels of employment and build on improvements from the first three months of 2017, as a Labour Force Survey released by the stats bureau in early May showed Japan’s jobless population fell 10.7 per cent year on year in the first quarter to 1.9m. 

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Industrial Profits Climbed 14% in China

Industrial profits in China climbed to 572.8 billion yuan last month, according to the National Bureau of Statistics. That compares with a jump of 23.8 percent in March and an 8.5 percent increase from last year.

Output in the world’s largest manufacturing nation is booming on the back of stronger global trade and investment, handing producers better pricing power. China’s exporters are capitalizing on the improved demand amid concern that the global economy may slow in the longer term.

 

Industrial profits still maintain good growth as the industrial companies debt ratio fell to 56.2 percent as of the end of April, down 0.6 of a percentage point from a year earlier. The profits surged 24.4 percent to 2.28 trillion yuan in the first four months as 38 of 41 industries achieved better profits than last year.

Financing costs of companies are rising as financial expenses gained 4.2 percent last month year on year, 1.2 percentage points higher than March.

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