No Progress in U.S. Debt Ceiling Talks

July 25, 2011

Risk-on trading has returned.  The Swiss franc and yen rose 1.8% and 0.5% against the dollar, which has also slipped 0.2% against the euro and 0.1% relative to the Canadian and New Zealand dollars.  The dollar has firmed 0.1% against sterling and is unchanged versus the yuan.  Gold leaped 1.2% to $1620.20 per ounce.

  • No breakthrough has been reported between the Obama Administration and House Republicans.  Deadline to avert default is just 8 days away.
  • Moody’s downgraded Greece’s credit rating by three notches to Caa1 from Ca, citing virtual 100% risk of default and likely substantial losses for private investors.  This decision followed an earlier downgrade of also three notches on June 1.
  • Peripheral bond spreads versus Germany have widened.
  • A high-speed rail accident in Eastern China on Saturday (local time) killed at least 36 and injured over 200 people.  Chinese share prices plunged 3.3%.

Equities also fell by 1.6% in Australia, 1.0% in South Korea, 0.9% in Taiwan, 0.8% in Japan, 0.7% in Hong Kong, 0.6% in New Zealand, 0.5% in Indonesia and 0.4% in Singapore and Malaysia.  The German Dax is unchanged, while the Paris Cac and British Ftse have slid by 0.2% and 0.1%.

The yields on 10-year British gilts and German bunds fell by six and two basis points.  Japan’s JGB yield is steady.

Unable to break the $100 threshold amid new worries about global growth, oil retreated 0.6% to $99.31 per barrel.

Australian PPI inflation accelerated to 3.4% last quarter from 2.9% in 1Q11, 2.7% in 4Q10, 2.2% in 3Q10 and 1.0% in the second quarter of last year.  Producer prices rose 0.8% on quarter, down from a 1.2% increase in the first quarter.  Domestic producer prices were 1.1% higher (4.6% on year), while import prices fell by 1.4% on quarter and 5.2% on year.

Noda, Japan’s finance minister, engaged in further verbal intervention.

Singapore consumer price inflation accelerated to a five-month high of 5.2% in June from 4.5% in April and May.

The British Bankers Association reported a slightly higher 31.7K number of mortgage loans in June versus 30.8K in May but an 11% on-year drop in the value of mortgage lending.  The Hometrack index of U.K. house prices slid 0.1% for a third consecutive month in July and was 3.9% lower than a year earlier.

Italian consumer confidence weakened to 103.7 in July from 105.8 in June.  Dutch business confidence worsened 4.2 points to minus 2.2 in July.

Czech business confidence fell 0.8 points to 92.7 in July, while consumer confidence recovered 1.5 points to 81.5.

Germany’s index of leading economic indicators firmed 0.5% in May after a 0.9% increase in April.  The index of German coincident indicators edged up 0.1% after showing no change in April.

The Greek trade deficit widened 13% on month to EUR 1.38 billion in May.  Icelandic consumer and producer prices rose by 0.1% and 0.5%, respectively, in July and were 5.0% and 13% higher than a year ago.

The Dallas Fed and Chicago Fed National manufacturing indices get released today.  All eyes will be watching for the latest development in the federal deficit negotiations.  Market players have mixed views on the immediate reaction if the talks fail to avert a default.  An interest rate decision is due in Israel.

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

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