Geopolitical Tensions Overhang Market

July 18, 2014

Markets are on edge following the downing of Malaysian Airlines Flight 17 in Ukraine by a surface to air missile, the invasion of Gaza by Israeli ground troops, and augmented trade sanctions against Russia by the EU and United States.  If anything is going to break the low volatility environment in the marketplace, this toxic stew of geopolitical tension should.

But dollar movement overnight again was minimal.  The greenback is unchanged against the euro, Swissie and sterling, up 0.2% relative to the yen and 0.1% versus the yuan, but down by 0.3% vis-a-vis the Australian dollar and 0.1% relative to the Canadian and New Zealand dollars.  Malaysia’s ringgit is just 0.2% lower.

Share prices fell by 1.0% in Japan, 0.5% in Malaysia, 0.3% in Hong Kong and 0.1% in South Korea, Taiwan and New Zealand.  Stocks rose 0.3% in China, India and Indonesia and by 0.2% in Australia.  In Europe, share prices are down 1.0% in Spain, 0.7% in Germany, 0.6% in Switzerland, 0.5% in Britain, 0.4% in Italy, and 0.3% in France.

Compared to 24 hours ago, 10-year sovereign debt yields have dropped by three basis points in the United States, Germany and Britain, and the 10-year JGB remains at a lowly 0.53%.

Gold fell by 0.5% to $1,310.90 per troy ounce.  WTI oil is up 0.3% to $103.46 per barrel.

Published Minutes from the Bank of Japan Board’s June 12-13 meeting indicate satisfaction that the post-tax hike effects on growth will prove temporary but also some uneasiness with why long-term interest rates are so low.  Concern was expressed about rising geopolitical unrest.

Japan’s department store sales posted a 4.6% on-year drop in June after falling 4.2% in the year to May.

Chinese property prices recorded a second straight monthly decline, falling 0.5% in June after a 0.2% drop in May, and falling property values were observed in a widening number of reporting cities.

Euroland’s seasonally adjusted current account surplus narrowed to EUR 19.5 billion in May from EUR 21.6 billion in April.  Over the dozen months through May, there was a EUR 229.6 billion current account surplus, 21.4% wider than in the prior statement year.  However, the Basic Balance surplus in those two sequential years was very similar — EUR 270.4 billion after EUR 264.6 billion in the twelve months to May 2013.  The “Basic” balance is the sum of the current account and long-term capital movements.

France’s leading and coincident economic indicators fell by 0.2% and 0.1% in May.  Each outcome was worse than April results.

The reading for Dutch consumer confidence stayed steady at minus 2 in the latest report.  Belgian consumer sentiment also gets reported today.

North American scheduled data releases today feature Canadian consumer prices and include the U.S. index of leading economic indicators, the U.S. business sentiment index compiled by Reuters and the U. of Michigan, and Canadian wholesale turnover.  Mexican unemployment is due, too.

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

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