Confusion around Greek Debt Talks and a Big Drop in Chinese Stocks

May 28, 2015

Greek officials are expressing confidence a deal will be struck within three days.  The IMF and other creditors warn that the sides are still far apart.  Greece has been the main topic as G7 finance ministers and central bank chiefs continue to meet in Dresden, Germany.

Chinese equities plummeted 6.7%, most in several months.  The People’s Bank of China has allowed bank liquidity to tighten, and brokers are raising margin requirements.

The dollar gained 1.1% and 0.8% against the Australian and New Zealand dollars.  The Aussie dollar hit a 1-month low of USD 0.7641 on news that Australian business investment slumped 4.4% last quarter.  That was the second straight quarterly decline and twice as much as forecast.

The U.S. dollar also advanced 0.5% against sterling, 0.4% relative to the yen and 0.3% vis-a-vis the Canadian dollar.

  • First-quarter British GDP confirmed growth of only 0.3%, least since 4Q12, instead of getting revised higher as many analysts were predicting.  Sequential growth was half as much as in 4Q, trimming the on-year pace from 3.0% to 2.4%.  The monthly services index edged only 0.1% higher in March, cutting its 3-month/3-month change to 0.4% from 0.7%. The BBA reported a total of 42,116 mortgage approvals last month, most since June 2014.
  • Japanese total retail sales were 5.0% greater in April than a year earlier.  That swing from a 9.7% on-year drop in March reflected elimination of the distortion caused by last year’s consumption tax hike.  A month-on-month 0.4% rise in retail sales was actually less than expected.  Large-store sales increased 8.6% on year.  A plethora of monthly Japanese data arrives on Friday.  Meanwhile, BOJ Governor Kuroda again insisted that 2% underlying and stable inflation will probably be secured during the first half of next fiscal year, but few private analysts believe him.

The dollar edged down 0.2% against the Swiss franc and is unchanged vis-a-vis the euro and yuan.

  • A 14.4% widening of the Swiss trade surplus to CHF 2.86 billion in April reflected a 3% slide of imports as exports ticked up just 0.3%.  Swiss industrial production fell 0.5% between 1Q14 and 1Q15.
  • Euroland’s economic sentiment index in May remained at April’s two-month low of 103.8 rather than falling further as many analysts thought.  Consumer confidence of -5.5 was the same as its preliminary reading, though lower than in April.  Construction, industry, retail and services had better sentiment readings than in April.  The business climate index, however, slipped to 0.28 from 0.33.
  • Austria’s manufacturing purchasing managers index rose to a 9-month high of 50.3 in May, marking the second straight reading above the no-change demarcation of 50.0.  Each month, Austria is the first eurozone economy to have its PMI reported, not counting preliminary reports for France and Germany.

West Texas Intermediate oil and Comex gold prices firmed 0.3% and 0.1% overnight to $57.66 per barrel and $1,187.50 per ounce.

Among 10-year sovereign debt yields, the British gilt, German bund, and Japanese JGB fell by six, three, and two basis points, respectively.

In other equity market action, stocks lost 2.2% in Hong Kong, 0.3% in Indonesia, and 0.2% in Australia, India, and Singapore.  However, there were gains of 0.4% in Japan, 0.3% in New Zealand, and 0.2% in South Korea and Taiwan.  In Europe, equities have fallen 0.8% in Greece, 0.6% in France, 0.4% in Germany, and 0.3% in Italy but are unchanged in Spain and up 0.2% in the U.K. and Switzerland.

German import prices rose on month for a third straight time in April.  A 0.6% advance cut the 12-month decline to 0.6% compared to 4.4% in January.  Energy rose 3.2% on month but dropped 22.1% on year.  All other import prices increased 0.4% on month collectively and 3.4% on year.  Export prices increased 0.3% in April and 1.6% from a year before.

Japanese stock and bond transactions generated a net capital outflow last week of JPY 584 billion following an outflow of JPY 1.627 trillion in the previous week.

Hong Kong’s trade deficit narrowed 15.3% on month to HKD 39.2 billion in April.

Italian consumer confidence weakened 2.3 points to a reading of 105.7 in May.  Business sentiment edged down 0.1 to 102.0.

Spanish real GDP recorded a seventh straight quarterly expansion last quarter, accelerating to quarterly growth of 0.9% and a higher on-year pace of 2.7%.

Icelandic CPI inflation edged upward to 1.6% in May from 1.4% in April.

Irish retail sales rose 0.5% in April and 11.9% on year.

South African PPI inflation slowed to 3.0% in April from 3.1% in March.

Norway’s jobless rate rose to 4.1% last quarter from 3.8% in the final quarter of 2014.

U.S. data arriving today include pending home sales and weekly jobless insurance claims.  Canada releases producer prices and quarterly current account figures.

Copyright 2015, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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