Troika agrees a route forward with Greece as protestors take to the streets.
The Greek government's commitment to its international lenders and bond holders, that it will push through widespread layoffs in the public sector despite the objections from government workers, sparked mass protests on the streets of Athens. As Eurozone finance ministers met in Brussels, in order to decide on whether to dole out the next tranche of bailout money to Greece so that it can meet its debt obligations, thousands of Greek municipal workers and state school teachers took to the streets in protest.
Germany's trade challenges
The big fundamental news surprise and 'miss' of Monday came our way courtesy of Germany. German industrial production fell twice as much as expected in May, according to official data. Output fell 1% in May from April compared with the 0.5% fall forecast by economists. Official statistics also revealed the biggest drop in German exports since late 2009, the fall was 2.4% in May, much weaker than the consensus forecast for a 0.4% fall in a poll of economists. Imports were up 1.7% on the month, overshooting the forecast for a 0.5% rise.
Carsten Brzeski, economist at ING, comments:
"The destiny of German exports remains in the hands of its trading partners outside of the eurozone. Since the beginning of the year, the share of exports to eurozone countries has stabilised at around 36% of total exports. All in all, today’s disappointing trade data show that the eurozone’s economic engine is still stuttering. After a strong start to the second quarter, May data have been rather disappointing. Nevertheless, we still think that at the end of a weather and holiday driven roller-coaster ride, the German economy should finally return to full strength in June."
Why are Japanese investors dumping U.S. treasuries?
Swimming against the tide of previously accepted wisdom Japanese investors have remained net sellers of foreign assets (especially U.S. bonds), despite the open ended monetary stimulus put in place by the BOJ. However, Japanese investors have been net buyers of euro-zone bonds, but at a reduced level than in late 2012. France and the Netherlands are their preferred countries, while the PIIGS have yet to see an uptick. U.S. Treasuries began to slide in May, pushing up yields, then an accelerated drop occurred as expectations grew that the Federal Reserve would begin to scale back its bond purchases. As quoted in the Wall Street Journal, Marc Chandler of Brown Brothers Harriman summed up the current situation;
"It appears that the bulk of the bonds that Japanese investors sold in May were US Treasuries and the roughly $30 billion were a record amount. This follows the $15.5 billion sales in April. May was the fifth consecutive month Japanese investors have reduced their U.S. Treasury holdings and over this period sold about 8 trillion yen."
Market round up
The Standard & Poor’s 500 Index registered a third straight day of gains, as the start of corporate earnings season fueled increased market optimism about sustained growth. The SPX added 0.5 percent to 1,640.46 at 4 p.m. in New York, the highest level witnessed since June 18th. The DJIA rose 88.85 points, 0.6 percent, to 15,224.69. More than 6 billion shares traded hands on U.S. exchanges on Monday, 8 percent below the three-month average.
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The UK FTSE rose 1.17%, in Monday's sessions, whilst the German DAX index rose 2.02%. Gold finished the day flat, whilst oil fell marginally by 0.27%. The Chicago Board Options Exchange Volatility Index – VIX, fell 0.7 percent to 14.78. The equity volatility gauge, which moves in the opposite direction as the S&P 500 about 80 percent of the time, reached a six-month high in June and has since dropped 28 percent.
Consumer debt rises, the market sees it as 'good news'
Consumer borrowing in the U.S. rose exponentially in May as more Americans put more purchases on credit cards and took out school and automobile loans. The $19.6 billion increase in credit followed a revised $10.9 billion gain the previous month according to Federal Reserve figures. The median forecast predicted a $12.5 billion advance.
Lending to consumers by the federal government, mainly for student loans, rose by $3.8 billion. Cars and light trucks sold at a 15.9 million annual rate in June, the biggest volume witnessed since November 2007. Revolving debt, including credit cards, increased $6.6 billion, the most in a year, after an $800 million advance in April.
Forex focus
The Dollar Index fell from its three-year high due to speculation it has risen too fast and too high after a report last week showing stronger-than-forecast U.S. job growth increased bets that the Federal Reserve will now have the justification to begin to throttle back its monetary stimulus.
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The Dollar Index, used to track the greenback versus the currencies of six U.S. trade partners, fell 0.3 percent to 84.207 at 5 p.m. in New York after reaching 84.588 earlier, the highest level experienced since July 6, 2010.
The euro advanced 0.3 percent to $1.2870 and rose 0.1 percent to 129.95 yen. The dollar lost 0.2 percent to 100.97 yen after gaining earlier to 101.53, the strongest since May 30th.
The Canadian dollar traded at close to a two-year low after the nation’s central bank released a survey showing Canadian business optimism faded in the second quarter. The loonie rose 0.2 percent to C$1.0558 per U.S. dollar at 5 p.m. in Toronto. The currency touched C$1.0609 per U.S. dollar on July 5th, the weakest since October 2011. One loonie buys 94.72 U.S. cents.
Sterling rose 0.3 percent to $1.4940 during the afternoon London session after falling to $1.4859. It reached $1.4858 on July 5th, the lowest level witnessed since March 12th. The pound was little changed at 86.15 pence per euro after weakening to 86.33 on July 4th, the least since April 17.
Fundamental policy decisions and releases that could affect sentiment on Tuesday 9th July
The key fundamental release rating as high impact on Tuesday concerns the UK, manufacturing production fell 0.2% last month and the expectation is that the UK will revert to growth with most economists pencilling in 0.3% growth month on month. The UK trade balance and industrial production figures are also published courtesy of the UK's ONS.
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