Markets Watching Sunni Insurgency in Iraq with Great Apprehension

June 16, 2014

Further violence in Iraq kept the WTI oil price near $107 per barrel, lifted gold by 0.5% to $1,280.90 per ounce, and raised the yen to 137.71 per euro, strongest since February 6. 

Sterling is unchanged unbalance against the dollar but earlier surpassed $1.70 for the first time since August 2009, touching a high of $1.7012.  A deputy governor of the Bank of England made some hawkish remarks about interest rate normalization.

The dollar is narrowly mixed, with losses of 0.2% versus the kiwi and 0.1% against the yen, Swiss franc and Australian dollar but a rise of 0.2% relative to the Canadian currency.  The euro is steady.

While 10-year German and Japanese sovereign debt yields are unchanged, the British gilt yield dipped a basis point.

Chinese share prices firmed 0.7% as the People’s Bank of China extended last week’s 50-basis point cut in reserve requirements to more creditor banks.  Japan’s Nikkei, in contrast, closed down 1.1%.  Stocks fell 0.8% in Indonesia, 0.3% in India, and 0.1% in Hong Kong and Singapore but rose 0.2% in New Zealand and 0.1% in Taiwan, South Korea and Australia.  Iraqi violence weighed on stock markets in Europe, where losses so far amount to 0.8% in Spain, 0.6% in Italy, 0.5% in France, 0.3% in Germany and 0.2% in Switzerland and Britain.

Consumer prices in the euro area slid 0.1% on month in May and decelerated to a 12-month rate of only 0.5% from 0.7% in April and 1.4% in May 2013.  Core inflation dropped to 0.7% from 1.0% in April.  Price inflation for food, alcohol and tobacco of just 0.1% last month compares to 3.2% in the year to May 2013. 

The Russian base rate, as expected, was left at 7.5%, its level since a 50-basis point hike on April 25.

Markets await a busier-than-usual U.S. data release calendar than one typically finds on a Monday.  Arriving U.S. indicators include industrial production, capacity usage, the National Association of Home Builders housing market index, the Empire State manufacturing index, and the Treasury-compiled monthly capital flow figures.  An FOMC meeting begins Tuesday and will end the following day with a Yellen press conference.

New Zealand consumer confidence edged down 0.4% this quarter but remained very high historically.  House prices in New Zealand slumped 1.2% on month in May, and housing sales were 14.8% lower than in May 2013.  New Zealand’s service-sector purchasing managers index sank to a reading of 54.2 in May from 58.5 in April.

An assistant governor of the Reserve Bank of Australia warned that joblessness in that economy will remain higher than desired for the next few years.

Britain’s Rightmove house price index edged just 0.1% higher this month following a 3.6% leap in May.  The 12-month increase slowed to 7.7% from 8.9%.

German jobs in manufacturing were 0.9% higher than a year earlier in April.

Spain’s indices of leading and coincident economic indicators rose by 0.1% and 0.2% in April, less in each case than gains during March. Norway’s trade surplus narrowed 13.8% on month and 6.1% on year in May to NOK 26.79 billion.

Austrian consumer price inflation ticked up to 1.8% last month from 1.7% in April. Danish producer price inflation accelerated to 1.2%, while the Czech PPI was down 0.1% on year in May.

Wholesale price inflation in India accelerated a lot more sharply than forecast to 6.0% in May from 5.2% in April.  A 9.1% Turkish jobless rate in March was up from 9.0% in February and 8.7% a year earlier.

In addition to the bunch of U.S. data releases mentioned above, Canada reports existing home sales today.

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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