US and EU trade deal helps lift the ASX

The Australian share market moved higher today as gains by banks and retailers offset falls by the big miners.

Transcript

00:00Today's rise in the share market has been put down to the fact that America and Europe

00:05did a trade deal yesterday.

00:06Now, I'm not sure that Australia's banks and retailers stand to gain from that, but

00:11I think they just benefited from the warm glow that comes from any trade deals being

00:15announced instead of trade wars.

00:16The same thing happened last week when the US deal with Japan was announced, even though

00:21it resulted in a steep increase in tariffs on Japanese imports.

00:25Japanese shares surged in relief, and the global index also jumped.

00:30The deal with Europe is much the same as the one with Japan, and also surprisingly one-sided.

00:3415% tariff instead of the 30% threatened in return for lots of cash.

00:40But although the US has a big trade deficit with Europe in goods, the whole picture is

00:44very different.

00:45The goods deficit, a lot of which is German cars, is entirely offset by services exports

00:50to Europe, including royalty payments for US intellectual property.

00:55So the current account balance is roughly zero.

00:58On commodity markets, the iron ore price dropped more than 3% after news that global steel output

01:04fell 5.8% in June.

01:06The US share market rose on Friday, but in Japan, stocks retreated today.

01:11And the Aussie dollar is down slightly at 65.5 US cents.

01:15Finally, an arresting graph of public or government demand as a percentage of GDP hit my inbox from

01:22Westpac today.

01:23Now, after averaging around 22% of the economy from 1975 to 2015, government spending has

01:31exploded to a record 27%.

01:34Now, 5 percentage points might not sound very much, but it's about $130 billion a year, equal

01:41to the mining sector's share of the economy in the mining boom.

01:46So now we're in the midst of the government boom.