China Steals Greece’s Thunder in the Market Spotlight

June 19, 2015

For whatever reason, markets are not taking the Greek debt standoff as seriously as one might expect.  Neither the Tsipras government nor Greece’s creditors have taken steps that suggest a last minute compromise.  But share prices in Europe are up 1.1% in Italy, 0.7% in Spain and 0.6% in Greece. 

Several markets in the Pacific Rim closer higher, too, such as Japan (0.9%), Australia (1.3%), Indonesia (0.8%) and India (0.7%).

A notable exception is China, where share prices tumbled another 6%, catapulting the recent cumulative slide above 10%.  More ominously, analysts are increasingly comparing China to what happened in Japan 25 years ago.  The Nikkei 225 peaked at 38,916 on the final trading day of 1989 and is presently trading at only slightly more than half that level.  What now constitutes as normal real growth in Japan is about a quarter as fast as it was before market bubbles there burst a generation ago.

The dollar is 0.6% stronger than Thursday’s close against the New Zealand and Australian dollars and shows gains of 0.5% versus the loonie, 0.4% vis-a-vis the euro and 0.1% relative to sterling.  The yen is 0.1% firmer, and the yuan is unchanged.

Ten-year sovereign debt yields have fallen by six basis points in the United States, three basis points in Great Britain and two bps in Germany.

WTI oil has slumped 1.9%.  Comex gold had edged 0.2% lower.

The Bank of Japan’s June Policy Board meeting made different news than anticipated.  The stance was left unchanged, as expected.  But the discussion of the economy also underwent no tweaks.  Many analysts expected to hear and see evidence of growing disharmony over the policy, which didn’t happen either.  The surprise was a recommended new framework for communicating policy, which if approved by the government would take effect at the start of next year.

Japan’s all industry index, a supply-side proxy for GDP available on a monthly basis, rose only 0.1% in April after falling 1.4% in March.  But the index was 1.3% higher than a year ago.

Japanese department store sales were 6.3% higher in May than a year earlier, when retail activity was hammered by a consumption tax hike.

Japan’s index of leading economic indicators improved 1.1% in April to 106.4.  The index of coincident economic indicators climbed 1.9%, eliciting a government assessment that the trend is “improving.”

German producer prices stagnated in May, trimming the on-year decline to 1.3%.  Energy fell 4.1% on year, while all other producer prices collectively moved 0.3% lower.

The eurozone current account surplus widened to EUR 22.3 billion on a seasonally adjusted basis in April from EUR 18.0 billion in March, EUR 27.3 billion in February and EUR 30.6 billion in January.  The unadjusted EUR 244.9 billion surplus over the past dozen reported months was 30.4% greater than in the previous twelve months.

Canadian consumer prices in May increased 0.4% on month seasonally adjusted, same as reported yesterday.  The 12-month rises of 0.9% overall and 2.2% were above U.S. levels.  Canadian retail sales dipped unexpectedly in May, slipping 0.1% on month and 0.6% excluding autos and auto parts.

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

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