Greek Dismay and a Nuclear Deal Reached with Iran

July 14, 2015

The price of West Texas Intermediate crude oil fell 2.1% to $51.12 per barrel on news that deal was reached to greatly relax economic sanctions on Iran in exchange for constraints on Iranian nuclear production and enhanced western access to inspecting Iranian facilities.  The agreement follows nearly three weeks of intense talks and is opposed vehemently by Israel but favored by a U.S. government hoping to avoid another Middle East war at all costs.

As for Greece, the crisis ain’t over until it’s over.  Tsipras is having a hard time selling the concessions to his own party and the Greek people, who feel victimized by a German-led “European coup.”  The Greek government has much to implement by tomorrow, or the deal will be nullified.  Continuing uncertainty regarding Europe generated new risk aversion in world financial markets.

  • Share prices tumbled over 2% in China and are down by 0.8% in Italy and 0.5% in Spain and Germany.  Japan’s Nikkei rose 1.5%, however, and Australia’s market rallied 1.9%.
  • The dollar fell 0.7% against the Swiss franc and sterling and 0.3% versus the Australian dollar and euro.  The yen and yuan are unchanged.  The loonie has lost 0.3% ahead of tomorrow’s Bank of Canada policy announcement.  The kiwi also softened marginally.
  • Sovereign bond yield spreads widened between Germany, where the 10-year slipped a basis point, and Italy, Portugal, Switzerland, Spain, and Britain where such respectively rose by 3,3, 3, 2, and 2 basis points.  Ten-year sovereign debt yields rose 5 bps in Australia, 1 bp in Japan, but are signaled somewhat lower in U.S. Treasury futures markets.
  • Comex gold eased 0.3% to $1,154.05 per troy ounce.

Chinese bank lending totaled CNY 1.28 trillion last month, a 5-month high.  On-year growth in M2 money, M1 and M0 of 11.8%, 4.3% and 2.9% in June constituted 4-, 2- and 2-month highs as well as exceeding street expectations.  Chinese international reserves fell by $40 billion in the second quarter to $3.69 trillion.  Such was the smallest quarterly decline since 2Q14 and followed a record $113 billion drop in the first quarter of this year.

The German ZEW index of investor expectations toward that economy fell less sharply than feared in July, printing at an above-average 29.7 after 31.5 in June.  Current conditions actually rose 1.0 to a two-month high of 63.9.  The report from the ZEW Center said Germany’s economic outlook “remains positive” in spite of Greek-related uncertainties.  The ZEW expectations index for the whole eurozone, dropped to 42.7 from 53.7 the month before and 61.2 in May, and the measure of current conditions in Euroland improved 7.2 points to a negative 14.4 score.

Industrial production in the eurozone fell 0.4% in May, depressed by a 3.2% plunge in energy shouldered heavily by The Netherlands, whose output plunged 5.7% month-on-month.  Greek production (-5.1%) slumped almost as strongly, but France, Italy, Spain and Portugal experienced rising industrial output in the latest month.  Production for the whole eurozone rose 1.6% between May 2014 and May 2015 but averaged 0.1% less in April-May than the 1Q mean.

Euroland’s household savings rate stayed at 12.8% in the first quarter of this year, the same ratio as in each of the final two quarters of 2014.

British price data for June reflected a continuing lack of inflationary pressure.  The 12-month change in consumer prices returned to zero from 0.1%, and its core measure eased to 0.8% form 0.9%.  Producer output prices were flat on month and 1.5% lower than in June 2014.  Producer input prices sank 1.3% from May and plunged 12.6% on year.  After posting a 16-month low in April of 5.5%, the 12-month increase of the DCLG house price index ticked up just 0.2 percentage points to 5.7% in June, which remains less than half as much as the 12.1% pace last September.

British same store sales showed accelerated 1.8% on-year growth in June.  Such was over three times greater than the expected rise and follows no change between May 2014 and May 2015.

The Swiss PPI/import price index dipped 0.1% in June and registered a bigger on-year slide of 6.3%.  Domestic producer prices were unchanged from May and 4.3% lower than a year earlier.

In the year to June, consumer prices in Sweden and Finland fell by 0.4% and 0.1%, while those in Spain edged up 0.1%.

Officials at Bank Indonesia left its benchmark interest rate unchanged at 7.5%.  The so-called BI rate was cut 25 basis points this past February, reversing the prior change in November 2014 which had been a 25-bp hike.

The Conference Board released its leading and coincident economic indicators for Japan and South Korea.

  • Japan’s LEI dipped 0.1% in May following no change in April and February flanking a 0.4% drop in March.  The index of coincident economic indicators fell by 0.2% after back-to-back 0.1% drops in March and April.
  • South Korea’s LEI plunged 1.2% in May, and its index of coincident economic indicators slipped 0.2%.

Wholesale prices in India recorded a 12-month decline in June of 2.40%, similar to the 2.36% decrease in the year to May.

According to the National Australia Bank’s report, business confidence in that economy rose 3 points to a reading of 10 in June, while business conditions climbed 4 points to +11.

Second-quarter GDP growth in Singapore was considerably weaker than forecast.  GDP fell 4.6% on quarter, reversing the prior quarter’s increase of 4.2% and cutting on-year expansion to 1.7% from 2.8%.

Retail sales leads a slew of U.S. data releases today that also includes import prices, business inventories, small business sentiment and weekly chain store sales.

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

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