Lingering Doubts about the Greek Deal and China’s Economic Prognosis

July 17, 2015

Greek banks will reopen next Monday.  A number of European parliaments, including the Germany Bundestag, are presumed likely to vote today on approving a third bailout, this time of EUR 86 billion.  All eurozone members must agree on this for the deal to pass.  Finland has already done so.  Despite this progress, grave doubt continues to be expressed by analysts about the agreement working.  Forecasts range on how soon Greece leaves EMU, not whether that ever happens. 

There’s also a lot of suspicion about the accuracy of Chinese economic statistics and whether the true magnitude of the slowdown there is getting reported.  The extreme stability of on-year GDP growth over the last six quarters — 7.4% in 1Q14 and 2Q14, then 7.3% in 3Q14 and 4Q14, and now 7.0% in both the first and second quarters of 2015 — appears unnaturally stable and artificially smoothed down.

Not much data was reported abroad, but there is a busy slate of U.S. releases today led by consumer prices and including housing starts, building permits, and the U. Michigan index of consumer sentiment.  Canadian consumer prices arrive also.

Markets have been generally quiet.  The dollar is unchanged overnight against the yuan, euro, sterling and yen.  The greenback rose 0.1% versus the loonie, Swissie and Aussie dollar but fell 0.4% relative to the kiwi.

Share prices rose by over 3.0% in China and gained 1.1% in Hong Kong, 0.5% in New Zealand, 0.4% in Singapore and 0.3% in Japan.  Stocks were unchanged in Australia and Taiwan and dropped 0.7% in Indonesia and 0.5% in South Korea.  There have also been losses of up to 0.3% in Germany, Italy, Switzerland, Spain and Great Britain, while the Paris Cac has edged 0.1% higher.

Ten-year sovereign debt yields slipped by seven basis points in Australia, four basis points in France, and two bps in Germany, Italy, Spain, The Netherlands, Portugal and Japan.  Yields are unchanged in the U.K. and Switzerland.

Among commodities, Comex gold and the price of West Texas Intermediate crude oil each eased 0.2% to $1,143.57 per ounce and $50.81 per barrel.

The European Central Bank released results of its third-quarter survey of professional forecasts, who bumped up their 2015 CPI forecast by 0.1 percentage point to 0.2%, retained a projected 1.4% GDP growth rate for this year, and bumped their unemployment estimate down to 11.0% from 11.1% in the prior survey.

Construction output in the eurozone rose for the first time in four months during May, gaining 0.3% both on month and on year.  In the second quarter of 2014, construction output had fallen 0.9% on quarter and 3.0% on year.

Icelandic consumer prices jumped 0.8% between May and June, the fifth increase in a row.  A streak of seven straight 12-month declines dating back to November 2014 ended, as the CPI was unchanged compared to June 2014.

Portuguese producer prices dipped 0.1% in May and were 1.8% below a year earlier.  Czech producer prices declined 0.2% on month and by 2.3% between June 2014 and June 2015.

South Korean producer prices, while unchanged on month, posted a 3.6% drop in the twelve months to June.

Australian job ads fell 0.6% in both May and June.  The Conference Board’s index of Australian economic indicators rose 0.2% in May after a 0.3% decline in April, while the index of coincident economic indicators gained 0.3% on top of a 0.1% uptick the month before.

Late on Tuesday, the U.S. Treasury Department released capital flow data showing abundant net inflows during May totaling $93.0 billion on long-term capital and $115 billion including short-term flows as well.

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

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