Euro, Stocks, and Bond Yields Drop Further

July 12, 2012

The euro fell 0.4% against the dollar, declining below $1.2200 and to within three cents of its June 2010 low. 

The dollar has advanced by 1.3% and 1.2% against the commodity-sensitive New Zealand and Australian dollars.  The greenback fell 0.5% against the yen but is  higher by against the Swiss franc, 0.4% relative to the loonie and sterling, and 0.1% versus the yuan.

Japan’s Nikkei slumped 1.5%, responding poorly after the Bank of Japan’s policy meeting results were announced.  Elsewhere in the Pacific Rim, equities dropped by 2.2% in South Korea where an unexpected central bank rate cut was made, 2.0% in Hong Kong, 1.8% in Taiwan, 1.5% in India, 0.9% in Indonesia, 0.7% in Australian and 0.6% in the Philippines and Singapore.

In Europe, share prices have fallen by 2.2% in Spain, 1.3% in Great Britain, 1.2% in Germany, and 0.7% in France.

It’s becoming increasingly clear that those analysts predicting inflation in response to the prevalent fiscal deficits couldn’t be more mistaken.  The 10-year Japanese JGB yield slipped another two basis points to 0.77%, lowest since June 2003.  A 1.24% yield on the 10-year German bund is 9 basis points lower than at the end of last week and constitutes another record low.  The 10-year British gilt yield is five basis points weaker at 1.51%, and its U.S. Treasury futures counterpart has slipped under 1.5%. 

Yesterday’s FOMC minutes contained no startling revelations but reflected mounting concern about growth prospects.  A weakening global economic environment has emerged as the main market theme this month.

German wholesale prices fell 1.1% on month in June, trimming the 12-month rate of increase to 1.1% from 1.7% in May, 2.4% in April and 8.5% in June 2011.

Oil prices fell 1.4% overnight to $84.61 per barrel, while gold prices are down 0.8% at $1563.60 per ounce.

The Bank of Korea’s seven-day repo rate has been cut for the first time in almost 3.5 years.  It was lowered to 3.0% from 3.25%.  Korea’s become the second Asian central bank to ease monetary policy since last Thursday, when a surprise Chinese rate cut was announced.

Australian labor statistics for June were much weaker than anticipated.  The jobless rate increased to 5.2%, the most elevated since March and up from 5.1% in May and 4.9% in April.  Employment dropped by 27K overall and by 33.5K among full-time workers.  The participation rate fell 0.2 percentage points to 65.2%, and aggregate hours worked were 1.2% less than in May.

The Bank of Japan unanimously retained a zero to 0.1% target overnight money range.  Offsetting changes in the central bank’s credit loan facility and asset purchase plan left the total amount of quantitative easing unchanged and was presented as a technical modification only.  The economic outlook of officials remains essentially unchanged.  A new quarterly set of macroeconomic forecast was unveiled.

Bank Indonesia kept its benchmark interest rate steady at 5.75%, marking the fifth straight decision not to change such.

China reported money and credit data as well as international reserves.

  • M2 money growth picked up to a 13.6% on-year rise from 13.2% in May and 12.8% in April.  13.6% is the highest since December. 
  • Yuan lending growth of CNY 919.8 billion in June slightly surpassed expectations.  Such had risen by CNY 793 billion in May.  June’s rise was the second most in the first half of 2012.
  • Chinese reserves unexpectedly dipped to $3.24 trillion at end-June from $3.305 trillion at end-March and $3.181 trillion at end-2011.

The Bank of Japan’s balance sheet continued to expand in early July, reaching JPY 144.4 trillion on the 10th of the month, up from JPY 143.6 trillion at midyear and JPY 141.2 trillion at the end of April.  Stock and bond transactions last week generated a smaller JPY 388 billion net outflow versus a JPY 1.034 trillion outflow in the final week of June.

Industrial output in India posted an on-year 2.4% increase in May after recording a decline between April 2011 and April 2012.  April-May output was 0.8% greater than a year earlier.

New Zealand food price inflation remained at negative 0.2% on year in June.  New Zealand’s business purchasing managers index suffered a large 5.6-point plunge to a reading of 50.2 in June.  Such reflects near stagnation.

Late yesterday came the expected announcement from the Central Bank of Brazil of an eighth cut in the benchmark Selic rate to 8.0%.  Prior to last August, such had crested at 12.5%.

Industrial production in the euro area rose 0.6% in May, beating expectations of no change.  Output in April-May was 0.6% lower than in the first quarter, and output in May alone was 2.8% lower than a year earlier.  Production slumped 2.1% in France.  The monthly ECB Bulletin, as per custom, doesn’t deviate from the thrust of President Draghi’s press conference remarks last week.

Irish GDP sank 1.1% in the first quarter, twice as much as thought.  The current account was in deficit to the tune of EUR 1.05 billion.  Consumer prices in Ireland slid 0.2% in June and rose by a smaller 1.7% from a year before.

The Greek jobless rate of 22.5% in April was up from 22.0% in March and 16.2% in April 2011.  Dutch retail sales were 1.6% greater in May than a year before, and the Dutch trade surplus of EUR 3.6 billion was a bit less than April’s EUR 3.9 billion but a bit more than the May 2011 surplus of EUR 3.2 billion.

Scheduled U.S. data to be released today are weekly jobless insurance claims and monthly import prices. Mexican industrial production and Canadian house price figures will also be reported.  Peru’s central bank is holding a policy meeting.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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