Less Risk Aversion Than Yesterday

July 19, 2011

Markets are more hopeful about a resolution to Greece’s debt crisis.

  • The German Dax and Paris Cac have risen 1.5% and 1.1%.  The British Ftse has firmed 0.4%.
  • Austria’s central bank chief, Nowotny, said it’s possible that the ECB could accept Greek bonds even in the event of a selective default.
  • Venizelos, Greece’s finance minister, expressed confidence that Thursday’s EU summit can deliver an agreement with private-sector involvement.
  • Peripheral bond yield spreads are narrower than yesterday.
  • Ten-year German bund and British gilt yields have risen five and four basis points.
  • The dollar eased 0.5% against the euro to $1.4192 and has alos lost 0.4% against sterling, 0.8% against the kiwi, 0.7% relative to the Aussie dollar, 0.3% against the Canadian dollar and 0.1% versus the yuan.  Amid less risk aversion, dollar/yen is unchanged and dollar Swiss firmed 0.3%.

No progress is apparent in U.S. deficit reduction talks, however, and gold ($1605 per ounce) remains above the $1600 threshold.  Oil prices rose 0.8% to $96.70 per barrel.

Asian stocks were mixed.  Share prices rose 1.2% in Thailand, 0.7% in India, 0.6% in Singapore, 0.5% in Hong Kong and 0.8% in Pakistan, but such fell by 0.9% in China, 0.3% in South Korea, 0.2% in Taiwan, and 0.4% in Malaysia and Japan, which reopened after Monday’s Marine Day closure.

Published minutes from the Reserve Bank of Australia’s meeting earlier in July conveyed new reservations against tightening but indicated the CPI quarterly data due July 27 remain an important guide to future policy.  Officials cited heightened global risks and a slower recovery of domestic demand following the floods in the Northeast.  The minutes do not signal a definite need for further restraint.  It depends.

Construction in Euroland fell 1.1% in May and was 1.9% lower than a year earlier.  Construction in April-May still eked out a 0.4% increase relative to the average first-quarter level.

The German ZEW index of investor expectations sank six points to a 2-1/2 year low of minus 15.1.  Such had registered +15.4 last December.  But views of current conditions remain resilient, rising to 90.6 from 87.6, giving a mixed message to the data. 

The ZEW expectations index for Euroland printed at minus 7.0 after minus 5.9 in June and +13.6 in May.  The ZEW index for euro area current conditions was 2.3, down from 3.8 in June, 13.6 in May and 5.6 in April.

Greek joblessness improved to 15.8% in April, breaking a nine-month climb to a record high of 16.2% in April.

Producer prices in June fell by 0.8% in Ireland and 0.2% in Portugal.  These were the second and third dominos to fall in the euro debt crisis.  On-year PPI inflation stands at negative 1.0% in Ireland and +5.8% in Portugal.

Hong Kong unemployment was unchanged in June at 3.5%.

The Bank of Canada makes an interest rate pronouncement at 13:00 GMT (09:00 local time).  No change in the 1.0% overnight rate target is expected.  The U.S. reports on housing starts, building permits and weekly chain store sales today, while Canada’s index of leading economic indicators arrives.

Copyright Larry Greenberg 2011.  All rights reserved.  No secondary distribution without express permission.

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