Difficult Tuesday for Stocks and Sovereign Debt Instruments

June 11, 2013

Markets reacted with disappointment to the Bank of Japan statement and press conference.  Investors wanted but didn’t get any new initiatives to address the rise of JGB yields since the current policy was launched a bit over two months ago.  The 1-year period for the fund-supplying operations was not extended, and Governor Kuroda explained that JGB’s had begun to stabilize and would probably remain so in the long run.

The BOJ did not modify its policy at either its May or June meetings.  It did upgrade its economic assessment, however, based on better views of exports and industrial production.

Investors are also anxious about the German Constitutional Court’s review of the ECB’s OMT facility to see if such is legal under German law.  A two-day debate of OMT began today, although a court ruling is not expected before late summer.

Notwithstanding dovish remarks yesterday by St. Louis Fed President Bullard, a third source of anxiety is continuing speculation that Federal Reserve quantitative easing will be reduced as soon as September.  S&P assigned a “stable” label to the outlook for its U.S. credit rating, revising such from “negative.”  The improvement would be consistent with Fed tapering happening sooner rather than later.  The hawkish tone of recent comments by ECB Pdt. Draghi didn’t help either.

A tighter monetary posture in Turkey is being accompanied by threats to intervene in support of the lira.

Futures trading puts the 10-year Treasury yield a basis point above the critical 2.25% level.  Technically speaking, analysts have feared that if that level is breached, a stampede  of selling could ensue.  The 10-year Japanese JGB yield rose five basis points to 0.88%, some 50 bps above this year’s low, and the 10-year British gilt yield is six basis points higher than yesterday.  Within the European Monetary System, peripheral bond yield premiums continue to drift upward especially in the case of Greece.

Share prices slumped 1.5% in Japan and India, 1.7% in China, 4.6% in the Philippines, 3.5% in Indonesia, and 1.2% in Hong Kong.  Declines so far in Europe amount to 1.9% in Italy and Spain, 1.7% in France, and 1.6% in Germany and Britain.

Gold has sunk 1.3% to a 2-week low of $1368.60 per ounce.  Oil is 0.8% softer at $94.97 per barrel.

Dollar/yen is 1.7% weaker.  In contrast, the dollar has climbed by 1.7% against the kiwi and 1.5% versus the Australian dollar, touching its strongest level against the latter since June 2010.  The dollar is down more strongly against the Swiss franc (0.6%) than against the euro (0.2%), and it shows a gain of 0.2% relative to sterling but no change overnight against the yuan.

Japanese statistics released today show

  • that M2 money and broad liquidity growth accelerated to 3.4% and 2.8% in May from 12-month increases in April of 3.2% and 2.2%.
  • business conditions faced by large manufacturers improved to a 7-quarter high of 5.0 this quarter from 4.6 in 1Q according to the Finance Ministry’s quarterly survey.  Conditions for non-manufacturers went up 2.4 points to a reading of 6.4, and both manufacturing and non-manufacturing are likely to strengthen further in the second half of 2013 according to the survey.
  • machine tool orders posted a much smaller on-year drop of 7.4% in early May after a drop of 23.6% in April.

Home loans in Australia rose by 0.8% in April, less than half as much as forecast.  The National Australia Bank measures of business conditions and confidence respectively rose two points and one point in May.   Aussie labor statistics arrive on Thursday.

Turkish GDP rose 3.0% in the year to 1Q13 but 3.7% when adjusted for variations in the number of business days.  Turkey’s current account deficit widened 48.5% on month to $8.17 billion in April. 

 British industrial production rose only 0.1% in April, which was less than forecast and down from a monthly 0.7% advance in March.  Production was 0.6% lower than in April 2012.  Factory output dipped 0.2% on month and 0.5% on year.

The house price balance index compiled by the British Royal Institute of Chartered Surveyors improved to a reading of 5% from 1% in April.  This was the best level in 35 months.

Swedish consumer prices edged up 0.2% on month but fell 0.2% on year in May.  Core inflation was just 0.7%.  

Officials in Switzerland project GDP growth of 1.4% this year followed by 2.1% in 2014.

Hungarian consumer prices rose 1.8% in the year to May.  Cypriot consumer prices that month were just 0.2% higher than a year before. 

U.S. data arriving today include the Labor Department JOLTS survey, which Fed Reserve officials are monitoring with increasing interest, plus the NFIB index of small business sentiment, wholesale turnover and inventories, and weekly chain store sales.  There is an international economic forum in Montreal.

Copyright 2013, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

Tags: , ,


Comments are closed.