Less Risk Aversion

July 22, 2014

Now that Ukraine rebels are handing over the bodies of Flight 17 victims, investors are less fearful about an escalating cold war between Russia and Western powers.

Share prices climbed 1.7% in Hong Kong and India, 1.2% in China, 0.8% in Japan, 0.6% in Taiwan, 0.5% in South Korea and 0.1% in New Zealand, Australia and Singapore.  In Europe, equities have risen 0.8% in France, Britain and Germany and by even more in Italy (1.1%) and Spain (0.9%).

The dollar has a 1.34 handle against the euro and is up on balance by 0.3% against the common European currency, the Swiss franc and the kiwi.  The dollar has gained 0.2% relative to the loonie and 0.1% vis-a-vis the yen but is unchanged relative to sterling and off 0.1% versus the Aussie dollar and yuan.

The ten-year British gilt yield climbed four basis points, and the 10-year German bund is a basis point higher.  The Japanese JGB is unchanged following a 3-day Japanese holiday weekend.

Oil advanced 0.5% to $105.13 per barrel, but gold fell by 0.6% to $1,308.20 per troy ounce.

Investors await the release of U.S. consumer prices, existing home sales and weekly chain store sales

Japan’s advisory Council of Economic and Fiscal Policy revised projected Japanese GDP growth in the current fiscal year to 1.2% from 1.4% predicted six months ago.  Core inflation is also projected to be 1.2%.  Exports have been weaker than imagined.

Japan’s all-industry index recovered just 0.6% in May from a 4.6% plunge in April and was 3.5% lower in April-May combined than in the first quarter.  In May, services and industrial production went up 0.9% and 0.7%, but public administration and construction respectively fell by 0.6% and 0.4%.

Japanese supermarket sales posted a 12-month drop of 2.8% in June, larger than the 2.2% decline in May.  Japan’s index of leading economic indicators for May was revised downward to 104.8, lowest since January 2013, from 105.7 reported initially, 106.5 in April, 107.4 in March, 108.8 in February and 112.9 in January.  The index of coincident economic indicators printed at 111.3 versus 111.1 in April and 114.7 in March and drew an assessment of “weakening” from officials.

Taiwan, which is bracing for a typhoon strike, had 4.0% unemployment last month as forecast.

China’s index of leading economic indicators jumped 1.3% in June, most in six months, following a 0.7% rise in May.  the index of coincident economic indicators climbed 0.9% last month.  China’s central bank did not drain liquidity today.

The governor of the Reserve Bank of Australia, Glenn Stevens, gave a wide-ranging speech that endorsed the current monetary policy, indicated preparedness to stimulate further if that proves necessary, but failed to complain about the Aussie dollar’s excessive strength.

Britain’s public sector net borrowing last month was GBP 9.51 billion, down from GBP 11.86 billion in May.  The public sector net cash requirement of GBP 11.84 billion was above May’s GBP 8.38 billion.  The Confederation of British Industries released its monthly survey of industrial trends, showing a rise to 24 from 11.

Collective government debt in the European Monetary Union rose to 93.9% in the first quarter of 2014 from 92.7% a quarter earlier and 92.5% in 1Q13.

Switzerland’s trade surplus of CHF 1.38 billion last month was only half the size of May’s surplus, as imports leaped 10.8% and exports went up 5.6%.

Aside from the aforementioned U.S. releases of CPI and existing home sales, Mexico reports retail sales today, and Hungary’s central bank is expected to cut its key interest rate by yet another 10 basis points.  The G20’s task force on employment is holding its third meeting today in Brisbane, Australia.

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

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