Stocks Attempt to Bounce but Outlook Uncertain

July 9, 2021

Following Thursday’s wave of risk aversion, equities and sovereign debt yields rose in early Friday trading, and the dollar edged lower. Several Chinese and British data were release.

The People’s Bank of China cut reserve requirements by 50 basis points, which is projected to release about one trillion yuan of extra liquidity and hopefully buttress economic growth, which of late had seemed to lose some momentum. At four other central bank meetings on Thursday, benchmark interest rates were left unchanged at 1.75% in Malaysia, 4.5% in Sri Lanka, 1.0% in Serbia, 0.1% in Poland, and 0.25% in Peru, whose decision from the Board of Directors came late in the day. Like several of the others, Peruvian monetary officials acknowledged a spike of inflation above target but projected the overshoot would be temporary and defended the remaining appropriateness of keeping the policy stance very expansive.

Dollar dips today so far amount to 0.5% against the Aussie dollar, 0.3% versus the kiwi, peso, and sterling, 0.2% relative to the loonie and Turkish lira, and 0.1% vis-a-vis the yuan, euro, and DXY weighted index.

Equity markets in Europe have recovered today thus far by 1.8% in France, 1.4% in Italy, 1.0% in Germany, 0.9% in Spain and 0.7% in Great Britain, but Thursday’s selloff extended into Pacific Rim trading earlier in the day, with markets there losing 1.2% in Taiwan, 1.1% in South Korea, 0.9% in Australia and 0.6% in Spain. It’s not clear how U.S. stocks will shake out on this final session of the holiday-shortened week.

The 10-year Treasury yield rebounded four basis points in futures trading. The 10-year British gilt yield rose 3 bps, and its German and Japanese counterparts are up a basis point each.

The price of West Texas Intermediate crude oil advanced 1.2%, and gold held steady.

Chinese inflation slowed somewhat in June. Consumer prices dropped on month for a fourth straight time, depressing the 12-month rate of increase by 0.2 percentage points from May’s 8-month high of 1.3% to 1.1%. Producer price inflation had hit a 152-month peak in May of 9.0% (versus -0.4% last December) but eased back to 8.8% in June.

Other country price data reported today put consumer price inflation at a 2-month high of 2.9% in Norway, a 26-month high of 1.0% in Greece, and a 57-month high of 8.35% in Brazil.

Chinese June figures for money growth and bank lending were also released Friday. An 8.6% on-year rise in the stock of M2 money was above expectations and the most in three months. Yuan loans totaled CNY 2.12 trillion last month, also higher than analysts were expecting after May’s CNY 1.5 trillion figure and the most since March. Chinese auto sales in June were hampered by the short supply of chips and posted an on-year drop of 12.4%.

A 0.8% advance in British industrial production in May was only about half as much as forecast. Production was 20.6% greater than in May 2020 but still 2.6% less than prior to the pandemic in February 2020. Factory output actually dipped 0.1% on month after falling 0.3% in April. British construction output dropped 0.8% on month, trimming its 12-month increase from a record 79.4% in April to 56.5% in May. Monthly GDP compiled from the supply side went up 0.8% in May, and a 3.6% advance in March-May was the most in a half year. As elsewhere, the trend in economic activity in coming months will hinge on the ebb or flow of Covid infections.

The British goods and services trade balance swung to a surplus in May for the first time in four months, registering at GBP 884 billion. For goods trade only, the deficit narrowed by GBP 2.5 billion to an 11-month low of GBP 8.481 billion.

Italian industrial production produced a surprise disappointment in May, dropping 1.5% on month and from an on-year rise of 79% in April to a 12-month gain of 21.1%. Austrian industrial production was unchanged in May but up 23.4% on year, and factory output in the Netherlands grew 1.4% versus April and by a record 16.5% versus the same month a year earlier. In Finland in May, industrial production went up 2.2% on month and 8.0% on year.

House prices in the euro area increased 1.3% in the first quarter and were 5.8% above their level in the first quarter of 2020.

Japanese M2 money growth slowed to 7.6% on year in the second quarter from 9.5% in 1Q.

Canada reported a stronger labor market than expected last month. A 231k rise in jobs was almost 20% greater than forecast. The jobless rate dropped 0.4 percentage points to 7.8%, and labor participation revived to 65.2% from 54.6%. Average wage earnings were subdued, however. Ordinarily, today would have been U.S. jobs day too, but the release of June figures is delayed a week due to the Independence Day holiday earlier this week.

Copyright 2021, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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