MORNING REPORT (7am AEST)

The US economy grew at a 1.3pct annual pace in the June quarter, weaker than forecasts centred on a gain of 1.8pct. In addition March quarter GDP growth was revised down from 1.9pct to 0.4pct.

European shares fell on Friday. US economic growth was weaker than expected, Moody´s put Spain on review for potential downgrade and no deal was reached in the US on the budget deficit/debt ceiling. The FTSEurofirst index fell by 0.4pct while the German Dax was also down by 0.4pct and the UK FTSE lost 1.0pct. The FTSEurofirst index fell by 2.7pct last week.

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US sharemarkets slumped on Friday in response to weak economic data and inaction of the budget deficit/debt ceiling crisis. The Dow Jones fell by almost 97pts or 0.8pct with the S&P 500 down by 0.7pct and the Nasdaq fell by 9.9pts or 0.4pct. Over the week the Dow fell by 4.2pct and the S&P 500 lost 3.9pct while the Nasdaq fell by 3.6pct.

US treasuries soared on Friday (yields lower) on weak economic growth in the June quarter and a shock downward revision to March quarter GDP. US 2yr yields fell by 6pts to 0.36pct and US 10yr yields fell by 15pts to 2.80pct. Over the week US 2yr yields fell by 3pts US 10yr yields fell by 16pts.

Major currencies rose against the greenback after US economic growth data was released. The Euro rose from lows near US$1.4235 to US$1.4400, ending the US session at US$1.4370. The Aussie dollar rose from US109.15c to US110.10c, ending US trade near US109.85c. And the Japanese yen strengthened from 77.65 yen per US dollar to JPY76.85, ending US trade near the strongest levels.

Benchmark crude oil prices fell on Friday in response to weak economic growth in the US and on-going uncertainty about whether US politicians would hammer out a budget deficit/debt deal. Traders were watching progress of Tropical Storm Don which had caused 12pct of Gulf of Mexico output to be shut in. Nymex crude oil fell by US$1.74 or 0.7pct to US$95.70 a barrel and London Brent crude fell by US66c to US$116.70 a barrel. Nymex was down by 4.2pct over the week after rising 2.7pct the previous week. Nymex rose US28c a barrel in July.

Base metal prices were mixed on the London Metal Exchange on Friday. Nickel rose 1.8pct and copper rose 0.2pct but other metals fell between 0.5-1.6pct. Over the week metal prices were mixed. Nickel rose 4.3pct with copper up 1.6pct and aluminium gained 1.4pct but lead lost 2.8pct and other metals fell up to 0.7pct. And the gold price rose again on Friday to record highs on weak US GDP data and continued inaction on the US debt ceiling.

Comex December gold rose by US$15.00 an ounce to US$1,631.20. Gold rose almost 9pct in July.

Ahead: In Australia, the Performance of Manufacturing index, monthly inflation gauge and new home sales data is released. In the US, the ISM services index is released.

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