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US Fed Chair reaffirms transitory inflation expectations

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Global equity markets moved higher this week whilst the Aussie equity market took a breather, no doubt impacted by increasing virus restrictions. 

In local stock news, the Commonwealth Bank sold its general insurance business to the Hollard Group whilst building products supplier Boral announced it will sell its North American business for $2.9 billion, which will give Boral more surplus capital. 

Woolworths shares fell following the market debut of its hotels and bottle shop business Endeavour Group. Shares in Endeavour began trading at $6.50 but closed lower on their 1st day of trading. 
Australian lending data remained strong in May with new lending for housing continuing to rise, whilst lending for household goods and cars continued to trend higher. The proportion of housing lending at fixed rates rose again in May with the 2-year term the most popular. Business lending fell in the month. 

The preliminary Australian retail sales for May from the ABS rose by just 0.1% coming in weaker than expected, while the strict lockdown in VIC saw retail spending fall by 1.5% in the month. Excluding VIC, retail trade lifted 0.7% in May. Overall, retail trade is 7.4% higher in May versus the same time last year. 

Other figures from the ABS showed that more than 25% of firms are having difficulty finding staff as closed foreign borders has stopped employers importing workers. The shortages are particularly severe in the resources / mining services and agricultural industries. 

Iron ore exports played a starring role in the nation’s record trade surplus of $13.3 billion in May with exports to China rising 20% to $12.7 billion, the 3rd consecutive monthly record. 

US central bank chair Jerome Powell tried to hose down some of the hawkish statements made by some of his peers last week in his address to US Congress. Powell outlined why the recent jump in US inflation to a 13-year high would be temporary with the surge created by a steep drop in prices last year (lockdown), higher petrol prices (surging demand and lack of investment), and rapid increases in consumer spending (too much stimulus). He remained confident inflation would fall to the bank’s long-term goal of 2%. 

US Treasury Secretary Janet Yellen, who was previously the central bank chair, has warned of a catastrophic hit to the economic recovery if the US can’t pay its bills on time, asking Congress to extend a July deadline to pay back some of the federal debt. Perplexing given her standing. On the one hand she’s advocating for more and more spending which they can’t afford, exerting significant pressure on her ex-colleagues at the central bank, whilst now advocating for debt ceiling extensions. 

Surveys of purchasing managers show the Euro area’s private sector economy is growing at its fastest pace in 15 years, whilst in Japan manufacturing activity expanded for the 5th month but services continued to shrink. 
Nationals MP Barnaby Joyce has reclaimed the positions of party leader and Deputy Prime Minister after a leadership spill, which saw him defeat Michael McCormack, 3 years after stepping down. The move is aimed at bringing the National party closer to its traditional roots and voter base, potentially at odds with its coalition partner, in order to arrest the party’s decline. 

Covid restrictions increased locally this week with NSW feeling the brunt, which again resulted in more state border closures, due to a “contagious strain” (pretty sure all virus strains are contagious) with 22 new cases reported over the last 48 hours (the equivalent to 0.000343% of NSW) and hospital ICU’s freer than free. The social contract of a “few weeks to flatten the curve” and stop hospital ICU’s from being overloaded has clearly taken on a new life of its own. The strategy has always been elimination, not suppression as they have led us to believe. Elimination isn’t possible. 

The EU has added the US to its so-called “white list” meaning Americans (vaccinated that is) can travel to the region without facing restrictions upon arrival, whilst European leaders are hoping that President Biden will reciprocate. Depending on your understanding of history, interesting to see how quickly we’ve moved to and accepted segregation (vaccinated vs the unvaccinated) and travelling with “papers” with our health records on them. An eye-opener.

As more information is released post the G7 summit, it appears the event wasn’t as friendly and productive as first reported, with member countries in plenty of disagreement when it came to climate policies and curbing any China threats. Hardly surprising given plenty of self-interest when it comes to these sorts of events and gatherings. 

A 6th round of negotiations in Vienna have failed to revive a nuclear deal (a terrible deal) that would lift US sanctions on Iran in exchange for its scaling back atomic activities. The move came a day after conservative cleric Ebrahim Raisi was declared the winner of Iran’s presidential election. 

China continued their crackdown against cryptocurrencies with the central bank saying that banks and payment firms must not provide payment services for crypto-related transactions. These moves come after the government stepped up action to rein in digital mining which is extremely energy intensive.  

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