Less Optimism from the World Bank about Economic Outlook

June 11, 2014

European share prices and U.S. futures have backed downward following downward revisions by the World Bank of projected 2014 growth in the world, U.S., Japan, and several emerging markets including China.  Equities show losses so far of 0.8% in Germany and Spain, 0.9% in Italy, 0.5% in Britain, and 0.7% in France.  In the Pacific Rim losses were amassed of 0.4% in India, 0.3% in Australia and Honk Kong and 0.1% in India.  Japan’s Nikkei rose 0.5%, and stocks ended unchanged in New Zealand and China.

The 10-year U.S. Treasury yield climbed to 2.66%, highest since May 12.  In the euro area, bond spreads continued to narrow, as the 10-year German bund firmed two basis points to a yield of 1.42%.  The British gilt yield ticked a basis point higher, and the Japanese JGB remains at 0.60%.

The dollar has lost 0.3% against the kiwi, 0.2% relative to the yen and Aussie dollar, and 0.1% vis-a-vis the loonie and sterling.  The dollar, on the other hand, has firmed 0.2% against the Swiss franc and 0.1% versus the euro.  The yuan is steady.

Ahead of a meeting of OPEC oil ministers in Vienna, which is expected to retain a cartel production quota of 30 MB/D, West Texas Intermediate crude is 0.3% stronger at $104.61 per barrel.  Gold firmed 0.2% to $1,262.90 per ounce.

The new World Bank forecast revised expected global growth this year to 2.8% from 3.2%.  There is a big revision in projected U.S. growth to 2.1% from 2.8% given the drop of GDP reported for the first quarter.  Growth in Japan was revised to 1.3% from 1.4% and in China to 7.6% from 7.7%.  Euroland GDP is forecast to rise just 1.1% in 2014.

British labor statistics highlighted falling unemployment but also very subdued pressure on wages because of extensive continuing slack.  The claimant count of jobless workers fell by 27.4K in May after a decline of 28.4K in April, and such was associated with only a 3.2% jobless rate, down from 4.4% in May 2013.  The ILO standardized unemployment rate in February-April averaged 6.6%, down from 6.8% in 1Q14.  Such has been below the Bank of England’s 7.0% threshold for three straight months.  Average earnings including bonus pay was 1.7% lower than a year earlier in April and up just 0.7% on year in February-April.

Japan’s Ministry of Finance quarterly corporate survey revealed a sharper-than-anticipated adverse swing in business conditions to negative 14.6 in June from a reading of 12.7 in March, but respondents project a return to +14.6 by September.  For manufacturers, the latest readings were -13.9 now but a rise to +16.0 in September.

Japanese domestic corporate goods prices rose 0.3% on month and 4.4% on year in May, accelerating from 4.2% in April and 0.6% in May 2013.  Much of the rise embodies April’s 3-percentage point consumption tax hike.  Between May 2013 and May 2014, export prices fell 1.5%, while import prices edged up 0.1%.

Consumer confidence in Australia firmed 0.2% in June, stabilizing after a deep 6.8% plunge in May.

U.S. mortgage applications increased 10.6% last week, the first weekly advance in a month, and the 30-year fixed mortgage rate recovered eight basis points to 4.34%.

The Bank of Iceland again left its key interest rate unchanged at 6.0%.

There’s been a big political shocker in a Virginia Republican primary election in which House Majority Leader, and previously presumed heir apparent to follow John Boehner as Speaker, Eric Cantor was defeated by a Tea Party rival.  This result throws cold water on any chance of greater bipartisanship in Washington over such issues as immigration.  The Republican Party is engulfed in a revolutionary purge to cleanse all moderate voices.  History time and again shows that medium-term prospects favor extremist ideologies and tactics during revolutionary times.  Only the ruthless survive.

Industrial production in the year to April rose by 4.2% in Malaysia and 5.9% in RomaniaIndia’s trade deficit widened from $10.09 billion in April to $11.23 billion in May.

Central bank decisions are awaited from New Zealand late this afternoon, South Korea tonight, and Japan on Friday.

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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