Business capital spending was a notable data point last week with a fall in building and structures investment (down 1.3%) offset by a rise in equipment investment (up 2.5%) to see new capital spending rise 0.4% over the March quarter. This fell short of market forecasts predicting a rise of 1% on the back of strong business confidence. In addition, business investment expectations for FY19—how much they are planning to invest over the next year—of $87.7bn  were below consensus forecasts with economists highlighting the possibility of businesses spending even less in the wake of the Royal Commission if it prompts banks to tighten lending standards. Digging deeper, these numbers also cast some doubt on RBA optimism for non-mining investment as an economic driver with an increase of only 0.1% on the Dec-17 quarter.

Home approvals disappointed slightly falling 5% from 19.7k in March to 18.7k in April. The main driver was an 11.7% decline in unit approvals from 9.1k in March to 8.1k in April dwarfing a 0.7% rise in house approvals. Nationally, approvals are still up 1.9% over the year but that positive figure masks an annual decline of 7.5% in unit approvals which has been offset by an 11.3% rise in house approvals. Private sector credit grew 0.4% in the month of April and 5.1% over the year with housing credit growth slowing from 0.5% in March to 0.4% in April. The negative trend for personal loans continued with growth falling 0.3% over the month while business credit growth weakened slightly to 0.5%, down from 0.7% growth in March but still up 4.3% for the year

The Australian and other global markets were down this week with concerns over political tensions in Italy offsetting positive performance in the Health care and Industrials arena for CSL and the surge in Reliance Worldwide shares following its proposed acquisition of UK plastic PTC manufacturer John Guest. The other factor weighing on equities was the resumption of trade conflict between the US and Canada, Mexico and the EU with the Trump Administration announcing the imposition of steel and aluminium tariffs of 25% and 10% respectively. The EU and Mexico have threatened to mount their own tariffs in response with specifics to be decided in coming weeks while Canada has imposed tariffs between 10% and 25% on CA$16.6bn in imports from the US.

The Australian dollar strengthened this week against the US Dollar following the release of Chinese PMI numbers indicating strength with both manufacturing and non-manufacturing sectors reporting results ahead of consensus expectations. This was offset somewhat by the release of weaker than expected capital spending data referred. Oil prices continued their rise over this year with investor optimism on the prospect of OPEC production gaps continuing further until the end of 2018 countering fears that Russia and OPEC would increase supply instead following an upcoming June meeting. The ongoing limit on oil supplies, coupled with strong global demand, continues to support oil prices.

Safe haven demand rose strongly this week sparking a sizeable reduction in US and Australian bond yields as fears of a possible EU breakup reappeared. The catalyst was a constitutional crisis in Italy where a political deadlock appeared finally broken with a coalition forming between populist, Eurosceptic parties Five Star and the Northern League. President Mattarella rejected the coalition’s pick for Economy Minister and instead named an interim prime minister in Carlo Cottarelli to form a caretaker government. However, on Friday a coalition government was eventually formed with the second list of ministers being approved by President Mattarella after the efforts to form a caretaker government failed.

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