Yuan Decline Triggers Fresh Drop in Global Equities and Sovereign Debt Yields

August 12, 2015

The yuan fell by a further 0.9% against the dollar to 6.38, and in Hong Kong offshore trading the quote sank to 6.552.  Chinese central bank officials played down the development as a temporary adjustment to the new pricing system that will be more heavily influenced by market forces.  They asserted that economic fundamentals do not warrant a major cumulative drop in the yuan.

Share prices fell 1.1% in China, 3.1% in Indonesia, 2.4% in Hong Kong, 2.9% in Singapore, 1.6% in Japan, 1.7% in Australia and 1.3% in India and Taiwan.  Stocks in Europe are down by 2.4% in Germany, 2.2% in Italy, 2.5% in France, and 1.8% in Spain and Switzerland.

The dollar is broadly weaker, with losses of 1.4% against the Swiss franc, 1.1% versus the euro, 0.8% vis-a-vis the loonie, 0.9% against the kiwi, 0.7% versus the yen and Aussie dollar but just 0.2% against sterling.

Ten-year sovereign debt yields fell by four basis points in the U.S., 3 bps in Germany and Japan and 2 bps in Britain.

WTI crude oil recovered 1.5% to $43.71.  Comex gold advanced 0.8% to $1,117.65 per troy ounce.

Domestic corporate goods prices in Japan dipped 0.2% in July, same as June’s month-on-month decline, and fell 3.0% on a year-over-year basis.  In the year to July, export prices fell 4.9%, while import prices plunged 18.2%.

Japanese industrial production was revised to show a 1.1% increase in June from 0.8% reported initially.  Output increased 2.3% on year but still posted a 0.5% drop between the second quarters of 2014 and 2015.

Japan’s tertiary index of service sector activity went up 0.3% in June and 1.5% from a year earlier.

Concern about China was amplified by the latest batch of released data.  Chinese industrial production, retail sales and fixed asset investment in July each missed expectations, and each of those indicators weakened relative to June. In on-year terms, output went up 6.0% versus 6.8% in June and 6.3% in the first half of the year.  Sales increased 10.5% in the year to July, down from 10.6% in June and 10.4% in 1H, and investment increased 11.2% on year in the first seven months of 2015, down from 11.4% in 1H and 15.7% in 2014.

Eurozone industrial production fell for the third time in four months, dropping 0.4% in June.  Output in the month declined 2.1% in Portugal, 2.0% in Ireland, and 0.9% Germany.  Euroland’s output was 1.2% greater than a year earlier, down from a 1.6% increase in the 12 months to May.

Australian labor costs rose 0.6% between 1Q and 2Q and posted the same on-year advance, 2.3%, as observed in the first quarter.  Labor costs had risen 2.6% in the previous year to 2Q14.  RBA Deputy Governor Lowe warned of the risk from rising housing prices in Australia.

British labor cost data showed a weaker-than-expected 4.9K drop in July jobless claims and a deceleration of total wage earnings to 2.4% in the second quarter.  The jobless rate on an ILO basis was 5.6% in the second quarter.

Sweden’s seasonally adjusted jobless rate held steady at 4.1% last month.

Italy’s trade surplus narrowed to EUR 2.809 billion in June from EUR 3.30 billion a year earlier and EUR 4.14 billion in May.

Indian CPI inflation slowed more than forecast to 2.15% last month from 5.48% in June.  Industrial output fell 0.7% in July but rose 3.8% on year.

U.S. mortgage applications edged 0.1% higher last week.  Still to come: U.S. JOLTS index and July federal budget.

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

Tags: , , , ,


Comments are closed.