IFO Monthly Report and a Setback in the Greek Talks

June 24, 2015

Yesterday’s proposal by Greek Prime Minister Tsipras was not accepted by all the Europeans.  News of this setback sent share prices down 3.8% in Greece and 0.9% in Germany, Spain and Italy.  Stocks fell also by 0.5% in France and Switzerland and by 0.1% in Great Britain.  The Greek fixed asset yield spread above Germany widened anew.  Tsipras meets today with Lagarde, Draghi and Juncker.  Eurozone finance ministers also hold talks.

The German IFO Institute’s business climate index fell unexpectedly to a 4-month low of 46.9 in June from 48.1 in May.  Current conditions fell by 1.2 points, while business expectations were down 1.0 to a 5-month low.  The Institute characterized the German economy’s outlook as “overcast.”  Manufacturing, wholesaling and retail activities fell to 4-, 5- and 2-month lows, but construction continued to improve.  The services climate index, in contrast, advanced from 26.1 in May to a 47-month high of 27.1 in June.

The dollar is trading 0.2% lower against the euro, Swissy, loonie and sterling.  It’s down 0.3% relative to the kiwi and unchanged versus the yuan, yen, and Australian dollar.

Comex gold at $1,178.10 per ounce is steady.  West Texas Intermediate crude oil firmed 0.4% overnight to $61.23 per barrel.

The ten-year Greek sovereign debt yield is up 7 basis points.  The British gilt yield firmed three basis points, but its German counterpart edged a basis point lower.  The 10-year Japanese JGB is steady.

Minutes from the Bank of Japan Policy Board’s meeting in May contained no surprises.  Satisfaction is expressed that quantitative stimulus is working, and officials expressed more optimism regarding Japan’s economic outlook.

In contrast, the Shoko Chukin index of Japanese small business sentiment suffered an unexpected setback, falling overall by 1.2 points to a 4-month low of 46.9.  Confidence among small non-manufacturers slumped 2.7 points to 47.7.

Japanese corporate service prices edged up only 0.1% in May, cutting the 12-month increase to a two-year low of 0.6%.  Advertising costs sank 0.8% on month and 0.6% on year, but rentals and leasing expenses were 1.1% higher than in May 2014.

On-year French GDP growth in the first quarter got revised upward to 0.8% from 0.7% reported originally.  The quarterly advance of 0.6% entirely reflected faster growth in final domestic demand.  Net exports exerted a 0.5 percentage point (ppt) drag on GDP growth but was offset by a 0.5 ppt positive contribution from inventory building.  GDP had edged only 0.1% higher between 3Q14 and the final quarter of last year.

Dutch business sentiment rose 0.5 points to a 7-year high of 4.6, led by manufacturing.  Dutch real GDP went up 0.6% last quarter, not 0.4% as reported initially.  It was the fourth straight quarter of positive growth, resulting in an on-year pace of 2.5%.  The EUR 21.2 billion Dutch current account surplus last quarter was 38% greater than in the prior quarter.

Wage inflation in Italy edged down 0.1 percentage point to 1.1% in May. 

Norwegian unemployment held steady at 4.2% in April.  Poland’s jobless rate dropped to 10.8% last mnth from 11.2% in April, 11.7% in March and 12.5% in May 2014.  Finnish unemployment edged up 0.1 ppt to 9.7% and hit the highest seasonally unadjusted rate since May 2002.  Finnish producer prices fell 0.6% between May 2014 and May 2015.  Czech business sentiment and consumer confidence each improved in June, lifting the overall economic sentiment index by 1.7 points to an 83-month high.

According to the British Bankers Association, mortgage approvals in the U.K. climbed 1.2% on month to a 14-month high of 42,530.

The Swiss UBS consumption indicator continued its recent rising trend, climbing another 0.05 points to a reading of 1.73 in May.

Westpac reported an improved Chinese consumer sentiment index, up 1.2 points to 112.3 in May after back-to-back readings of 111.1 in March and April.  The Conference Board’s index of Chinese leading economic indicators rose 1.1% in May, somewhat less than April’s 1.4% advance, and again much higher than a 0.6% rise in the index of coincident economic indicators.

Investors await the second revision of first-quarter U.S. GDP.  Initially reported as +0.3% and then revised to -0.7%, such now seems likely to get revised higher to something hovering near zero.  Weekly U.S. mortgage applications and oil inventory data are also due.

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

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