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Weekly Economic Commentary

Weekly Economic Commentary

Categories: General

Following the Greek Parliament passing the austerity measures required as a precondition for receiving additional aid, the European Central Bank has pledged further bank funding and confirmed Greece’s place in the Eurozone, allowing the Greek banks to re-open today. Markets have rallied on the back of the news, with investors encouraged that the Greek Parliament voted in favour of the bailout package and things are moving ahead.

Whilst Greece has been stealing the majority of the headlines, investors are now shifting focus to concerns around the volatility in the Chinese equity markets and the contagion seen throughout Asia in the past fortnight. While the equity market free-fall has been stemmed for now, this is only because almost half the companies on the Chinese market are still suspended and traders are worried as to what will happen when these suspensions are lifted.

Last week had everything for financial market thrill seekers. The Greek lawmakers passed a bailout agreement that keeps the country in the European Union for now. The Bank of Canada also surprised markets with an unexpected 0.25% rate cut, taking official rates to 0.50%, Chinese June quarter economic growth exceeded expectations, posting GDP growth of 7%, while the US Fed Chair Janet Yellen signalled in her testimony to Congress that a US Fed rate hike is still on the table for this year.

The key local economic release this week will be the June quarter CPI data on Wednesday. The annual inflation rate is forecast to remain below the bottom end of the RBA’s 2% to 3% target range, but is running a little higher than the RBA’s projections published last May. Whilst the outcome would be consistent with the RBA leaving the current 2% cash rate in place, markets continue to forecast one more rate cut by the RBA. The probability of a cut before Christmas is currently at around 60%.

Source: Rural Bank


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