Somewhat Better-Than-Forecast Chinese Data Lifts European Equities

July 16, 2014

Stock markets in Europe have risen so far today by 1.6% in Italy, 1.4% in France, 1.2% in Germany and Spain, 0.9% in Britain and 0.8% in Switzerland.

Stocks in the Pacific Rim did not immediately respond to stronger-than-expected Chinese GDP and industrial production, as investors at first concluded that the government in Beijing would undertake less broad-based stimulus.  Markets closed down 0.9% in Taiwan, 0.2% in China and 0.1% in Japan.  Stocks ticked up just 0.4% in Singapore, 0.3% in Hong Kong, and 0.1% in Australia.

The kiwi touched a three-week low of USD 0.8689 after the release of softer-than-expected CPI inflation.  The U.S. dollar is currently up 0.7% against the kiwi, 0.3% versus the Australian dollar, 0.2% relative to the euro and Swissie, and 0.1% vis-a-vis the loonie and sterling.  The yen and yuan are unchanged against the U.S. currency.

Gold, which dipped below $1,300 yesterday, rebounded just 0.1% to $1,298.40 per ounce.  WTI oil climbed 0.7% to $100.64 per barrel.

The ten-year German bund and Japanese JGB yields are steady.  The 10-year British gilt yield edged down a basis point.

Late Tuesday came news of a somewhat unexpected 25-basis point cut in Chile’s key central bank interest rate to 3.75%.  This was the first cut since March 14 and the fifth such reduction since October 2013.  Chilean inflation remains above target but is easing, and growth has been weaker than desired.

China recorded a quarterly GDP increase of 2.0%, surpassing expectations of 1.8% and the largest gain since the third quarter of 2013.  On-year growth of 7.5% was marginally better than in the first quarter.  The year-over-year growth in GDP has ranged narrowly between 7.4% and 7.7% since the first quarter of 2013.  Such had been at least 9.5% until 2Q11 and as high as 11.8% in the first quarter of 2010.

Among other released Chinese economic indicators today,

  • On-year industrial production growth accelerated to 9.2% in June from 8.8% in May and 8.7% in April.  June’s figure was the best gain in the first half.  First-half output as a whole was 8.8% higher than a year before.
  • Retail sales advanced 12.4% on year in June, marginally less than May’s 12.5% increase but better than the first-half advance of 12.1%.
  • Business investment grew 17.3% year-over-year in the first half, edging above the January-May pace of 17.2% but still well below 19.6% in full-2013.

New Zealand consumer prices rose 0.3% in the second quarter, matching the first-quarter’s gain, and 1.6% from a year earlier, which matches the increase between the fourth quarter of 2012 and the last quarter of 2013. On-year CPI inflation got as low as 0.8% in 3Q12 and hasn’t exceeded 1.6% since the final quarter of 2011.  The lack of more acceleration suggests that the Reserve Bank of New Zealand may not normalize policy as quickly or as far as thought.

The latest batch British labor statistics were mixed.  The claimant count of unemployment dropped 36.3K in June, more than expected and more than May’s decline of 32.8K.  The ILO-basis rate of unemployment in March-May of 6.5% was a bit less than 6.6% in February-April.  But on-year growth for March-May in wages of 0.7% in regular pay and 0.3% including bonuses showed a continuing complete lack of upward pressure.  Bank of England Governor Carney has been hinting of a strong possibility of a first interest rate increase by the end of this year, but wages don’t really justify such a move as do other indicators.

Switzerland’s ZEW expectations index, a gauge of investor perceptions, plunged to a reading of 0.1 in July from 4.8 in June.

India’s index of leading economic indicators went up 0.8% in June after gains of 1.3% in April and 0.7% in May.  The index of coincident economic indicators posted back-to-back increases of 1.1% in May and 1.7% last month.  India’s trade deficit widened 4.7% on month to $11.76 billion in June.

Euroland’s seasonally adjusted trade surplus of EUR 15.3 billion was almost identical in May to April’s surplus of EUR 15.2 billion and embodied monthly rises of 0.6% in exports and 0.5% in imports.  The year-to-May surplus was EUR 62.5 billion in unadjusted terms, 12.8% wider than a year earlier.  A strong current account is a major reason for the euro’s strength against the dollar this year.

Italy had a trade surplus of EUR 3.676 billion in May, somewhat above April’s EUR 3.517 billion.  Spain’s deficit of EUR 1.98 billion in June was smaller than the trade deficit of EUR 2.2 billion in May. 

Producer prices in the Czech Republic were unchanged for a third straight month in June.  Such posted a 0.2% dip from a year earlier.

Wednesday’s North American calendar of events and data releases is very crowded.

  • Fed Chair Yellen reprises her Humphrey-Hawkins testmony at 14:00 GMT, this time before the House Financial Services Committee.  In senate testimony on Tuesday, she stressed that substantial slack remains in the labor market.
  • At 14:00 GMT as well, the Bank of Canada announces its latest interest rate decision.  Street economists expect no change in the 1.0% overnight money rate target.  The central bank also will release a new Monetary Policy Report.
  • The Federal Reserve Beige Book of regional conditions gets published at 18:00 GMT.
  • Scheduled U.S. data releases today include producer prices, the National Association of Home Builders index, industrial production, capacity usage, capital flows with other countries, and weekly oil inventories.
  • Canada’s monthly survey of manufacturing shipments, orders and inventories arrives today as well.

Brazil’s central bank will reveal its latest interest rate decision late today.  No change is expected. 

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

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