Geopolitical Risk Weighs on Share Prices

July 17, 2014

The U.S. and Europe imposed further economic sanctions against Russia in protest of its meddling into Ukraine affairs.  Russia led European stocks and U.S. futures lower.  Fighting between Israel and Hamas and the ISIS insurgency in Iraq are causing additional geopolitical worry.  Investors remain confused about Fed forward guidance.

Share prices are down 1.0% in Italy, 0.9% in Spain, 0.7% in France, 0.5% in Germany and Switzerland, and 0.4% in Britain.  Around the Pacific Rim, stocks closed down 0.8% in Indonesia and Taiwan and off 0.6% in China.  Markets hardly changed in Japan, Singapore, Australia and New Zealand.

The dollar is unchanged against the loonie, euro, Aussie dollar and Chinese yuan.  Gains have been registered of 0.3% against sterling and the kiwi, but there are also losses of 0.3% relative to the yen and 0.1% against the Swiss franc.

The ten-year German bund yield stayed below the 1.20% threshold, dipping a further basis point to 1.18%.  The 10-year Japanese JGB also slid a basis point, returning to 0.53%, the recent low.  The 10-year British gilt fell by four basis points to 2.61%.

Oil and gold respectively rose 0.9% and 0.3%, and they are trading above $100 and $1,300 at $102.13 per barrel and $1,303.30 per ounce.

Policymakers at Brazil’s central bank left their key Selic interest rate at 11.0% for a second straight meeting.  The key rate had been lifted by a total of 375 basis points during the year to April.  Inflation of 6.5% has climbed to its target ceiling, but growth is very weak.  The central bank statement gave little forward guidance.

Central banks in Turkey and South Africa will also announce their latest policy decisions today.

Ezone CPI inflation was confirmed at 0.5% in June.  The total and core consumer price index edged up 0.1% on month.  Non-energy industrial goods fell 0.4% on month and 0.1% on year, but service prices rose 0.5% on month and 1.3% on year.  Core inflation was at 0.8% last month versus 1.2% in June 2013.

Construction output in the euro area slumped 1.5% in May, which slashed the 12-month increase to 3.5% from 7.4% in April.  There were month-on-month declines of 4.9% in Germany, 1.2% in Portugal, 0.9% in the Netherlands and 0.7% in France.

EU car sales posted an unchanged 4.5% on-year rate of increase in June.  The Dutch jobless rate dropped 0.2 percentage points in June to 8.4%.  Portuguese producer prices fell 0.4% on year in June.  Austrian consumer prices were 1.9% higher than a year before last month.  Italy’s current account surplus narrowed 7% on month to EUR 1.89 billion in May.

In Japan, stock and bond transactions last week generated a JPY 907 billion net capital outflow, more than offsetting a JPY 763 billion inflow in the prior week.

The Conference Board’s indices of Australian leading and coincident economic indicators were respectively up 0.2% and unchanged in May.  NAB’s quarterly measure of Aussie business confidence slid a point to a reading of +6 in 2Q14.  ANZ reported a 0.6% uptick in Aussie consumer sentiment this month.

South Korean producer prices were unchanged on month in June but recorded a 12-month rise (albeit just 0.1%) for the first time since September 2012.

South African wholesale sales slid 0.9% in the year to May.

U.S. data releases scheduled today include monthly housing starts and building permits, the monthly Philly Fed manufacturing index, and weekly jobless insurance claims.  St. Louis Fed President Bullard speaks publicly.

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

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