The Reserve Bank of Australia (RBA) left interest rates unchanged at 1.50% in line with consensus expectations. Notable callouts include the focus on maintaining the RBA forecasts for growth and inflation at above 3 per cent and above 2 per cent for 2018 respectively. Drivers of still low inflation growth that were highlighted include the competitive retail landscape with food and consumer goods prices falling year on year while the RBA drew comfort from leading economic indicators that, in their eyes, point towards some lift in wages growth this year that should feed into economic demand.

The Australian property market continued to track lower with CoreLogic data confirming that overall dwelling prices have fallen 0.3% for the past year to April. The underlying split shows unit prices have held up with annual growth of 1.9% with the weakness coming from detached houses down 1.0%. Tightening lending standards with borrowing requirements being raised as well as tougher regulatory rules have been a major driver of this trend. Hobart is a notable exception with firm monthly growth and annual growth in the double digits. ABS Building approvals data by the ABS highlighted still strong demand with growth in March of 2.6% ahead of economist forecasts of 1.1%. This followed a 4.2% slump in February.

The Bank of Japan monetary policy was left unchanged on Friday in line with market expectations with a change in policy outlook not expected until inflation firms up towards their longterm target of 2%. Preliminary European inflation figures disappointed slightly with underlying inflation, a measure that excludes food and energy prices as well as alcohol and tobacco, slipping to 0.7% annual growth down from 1% growth in March. U.S. GDP slowed in the March quarter of 2018 but by less than expected at 2.3% annualised growth (consensus: 2.0%). Strong business demand offset a slightly weaker consumer for the US to continue its economic expansion. The Federal Reserve’s preferred inflation measure, core PCE, rose 0.2% with an annual rate of 1.9% in line with market expectations. This is close to the Federal Reserve’s long-run target for core inflation and, also in line with market expectations, the Federal Reserve kept its interest rate policy unchanged for this month.

Australian, European and Chinese equity markets rose over the week while the U.S. market slumped on the back of trade concerns between the US and China that weighed on sentiment as have disappointing earnings reports by the likes of Spotify and Snap.

Most commodities were down over the week with aluminium and iron ore notable exceptions. Aluminium strength was driven by ongoing uncertainty with the Trump administration extending its exceptions to tariffs for another month rather than permanently embedding them while iron ore rose on the back of rising Chinese steel demand. Oil prices fell with growing supply offsetting geopolitical concerns that the US would re-impose sanctions on Iran. It also reflects the currency impact of a rising US dollar on dollar-denominated commodities such as oil, making them more expensive for importing countries. The Australian dollar rose on positive economic data with trade balance figures highlighting a greater than expected surplus and building approval figures beating economist estimates and European economic data disappointing, boosting it against the Euro.

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