MORNING REPORT
(7am AEST)

US industrial production rose by 0.2pct in June, in line with forecasts. Consumer prices (CPI) fell by 0.2pct in June, weaker than the -0.1pct consensus forecast. But excluding food and energy (core prices) the CPI rose by 0.3pct, slightly ahead of market forecasts. And consumer sentiment slumped from 71.5 to a 2-year low of 63.8 in July.

European shares ended mixed on Friday as investors awaited bank stress tests after the close of trade. The FTSEurofirst index fell by 0.1pct but while the German Dax was up by 0.1pct, the UK FTSE was down by 0.1pct and the French CAC lost 0.7pct. The FTSEurofirst index fell 2.3pct last week.

US sharemarkets rose on Friday in thin trade. Optimism about corporate earnings offset mixed economic data. Shares in Google rose 13pct after posting earnings results. But shares in Citigroup lost 1.6pct after reporting flat revenue growth. The Dow Jones rose by 42pts or 0.3pct with the S&P 500 up by 0.6pct and the Nasdaq lifted 27pts or 1.0pct. Over the week the Dow fell by 1.4pct and the S&P 500 lost 2.1pct while the Nasdaq lost 2.5pct.

US treasuries rose on Friday (yields lower). Despite a firmer equity market, weak consumer sentiment and on-going negotiations on increasing the debt ceiling supported debt prices. US 2yr yields fell by 2pts to 0.359pct and US 10yr yields fell by 5pts to 2.91pct. Over the week US 2yr yields fell by 4pts and US 10yr yields lost 12pts.

Major currencies were largely directionless against the greenback on Friday although the Aussie dollar was weaker on interest rate cut expectations. The Euro held between US$1.4095 and US$1.4180, ending the session at US$1.4150. The Euro is at US$1.4115 this morning. The Aussie dollar fell in early European trade from US107.30c to US106.25c and then traded sideways through the US session to end trade near US106.40c. And the Japanese yen held broadly between 79.00 yen per US dollar to JPY79.25, before ending US trade near JPY79.05.

Benchmark crude oil prices rose on Friday. A firmer US equity market, favourable stress tests on European banks and concerns about lower Canadian oil supplies supported prices. Nymex crude oil rose by US$1.55 or 1.6pct to US$97.24 a barrel and London Brent crude rose by US$1.00 to US$117.26 a barrel. Nymex was higher over the week by 1.1pct but Brent lost 0.9pct.

Base metal prices were mixed on the London Metal Exchange on Friday. Tin lost 0.8pct, aluminium lost 0.5pct and nickel eased 0.2pct. Other metals rose 0.4-1.6pct. Over the week metal prices were mixed. Aluminium lost 1.7pct and lead fell 0.5pct but other metals rose 0.1-1.5pct with tin doing best. The gold price rose for the 10th straight day on continued inaction on the US debt ceiling. Comex gold rose by US80c an ounce to US$1,590.10. Gold rose by US$48.50 or 3.1pct last week.

Ahead: In Australia, data on new car sales is released. In the US, monthly capital flows data is released together with the NAHB housing market index.

Craig James
CommSec Chief Economist