Greek Default Risk Hangs over Markets Like a Dome

June 16, 2015

Share prices in Asia fell 3.0% in China, 2.1% in Hong Kong, 0.8% in Japan and Singapore and 0.7% in South Korea.  Equities in Europe have lost a further 3.4% in Greece, 1.5% in Spain, 1.3% in Italy, 1.1% in Germany, 0.9% in France, and 0.5% in Great Britain.  Greece’s creditors are not budging from demands for more reforms.

The ten-year British gilt yield fell five basis points, slipping below 2% to 1.97%.  The 10-year German bund edged a basis point lower, and futures point to a lower yield on U.S. Treasuries at the open.

Comex gold softened 0.3% to $1,182.00 per ounce, while WTI crude oil firmed 0.3% to $59.72 per barrel.

The dollar strengthened 0.2% against the Australian and New Zealand dollars, 0.2% versus the Canadian dollar and euro and 0.1% vis-a-vis the yen, Swiss franc and sterling.  The yuan remained unchanged.

Bank of Japan Governor Kuroda, who a week ago spoke about a weak trade-weighted inflation-adjusted yen, today denied worries about the yen’s value so long as market conditions do not turn disorderly.

The FOMC and Bank of Japan Board hold policy meetings this week.  Today is the first day of a 2-day FOMC meeting, which is not expected to pull the trigger on an interest rate hike.  The BOJ meeting on Thursday-Friday will be watched closely for any corroboration of press reports of widening disagreement among policymakers over the costs and benefits of endless quantitative easing.

Minutes released today from the Reserve Bank of Australia’s June 2nd policy meeting reiterated the desire for further Aussie dollar depreciation but failed to shed additional light on whether the official cash rate might be cut further, saying only that such a decision hinges on future data trends.

The German ZEW Institute’s June survey of investor sentiment toward Germany and the eurozone reflected unexpected deterioration no doubt related to the unresolved Greek debt crisis.  The German expectations index fell to a reading of 31.5, lowest since November, from 41.9 in the prior month and was accompanied by a drop in current conditions to 62.9 from 65.7.  In the case of Euroland, the expectations index dropped to 53.7, lowest since February, from 61.2, and the current situation for the eurozone posted a bigger negative score of -21.6 in June following -16.5 in May.

Employment in the euro area edged up 0.1% last quarter to 150.3 million workers.  Such had risen 0.1% in 4Q14, too, and recorded a smaller 0.8% on-year advance between 1Q14 and 1Q15.  New car registrations in the 25-nation European Union were just 1.3% greater in May than a year earlier.  That’s down from growth of 6.9% in the year through April.

German consumer prices rose 0.1% in May according to final data which matched the flash report.  On-year inflation of 0.7% was up from 0.5% in April, 0.3% in March, 0.1% in February and negative 0.3% in January.  Energy prices dropped 5.0% on year, while all other consumer prices collectively rose by 1.3%.

British consumer prices increased 0.2% on month in May, the third straight rise by that amount.  Consumer prices were 0.1% above their year-earlier level, swinging form a 0.1% on-year dip in April, and core inflation firmed to 0.9% from 0.8%.  In the year to May, British producer output prices declined 1.6%, while producer input prices plunged 12.0%.  Retail prices increased 1.0% in the year to May.  Finally, the ONS reported that house prices slumped 1.3% in April, completely reversing the outsized rise in March, and cutting the 12-month rate of rise to a 16-month low of 5.5% from 9.6% seen in March.

Australian motor vehicle sales fell for a second month in a row during May, losing 1.3%.  The on-year increase compressed to 0.8% from 2.6% in April.

While all three measures of Treasury-compiled U.S. capital flows strengthened between March and April, the data for the first four months of 2015 were less dollar-supportive than the mean trends of full 2014.

India’s trade deficit narrowed 5.3% in May to $10.4 billion.  Norway’s trade surplus of NOK 21.8 billion in May was 16.7% smaller than a year earlier.

The Swiss government revised down projected Swiss GDP growth for both 2015 and 2016 to 0.8% and 1.6%, respectively.  Demand for Swiss currency  soared after authorities removed a ceiling in January on the franc’s euro cross rate and has been stimulated further by the Greek debt crisis, and this has hurt growth prospects.  The Swiss National Bank holds a quarterly policy meeting this week.

Czech producer prices fell 2.1% in the year to May, the ninth sub-zero result in a row.

Investors await U.S. housing starts and building permits data today.

Copyright 2015, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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