Sentiment remained weak following yesterday’s disappointing Chinese and Japanese data, and higher Spanish bond yields. Spain’s 10yr government bond yield closed up 11bp at 7.06% - a one-month high and regarded as unsustainable for the economy. Otherwise, there was little fresh news for markets to digest. Fed dove Williams characteristically advocated fresh mortgage-backed security purchases as an eff ective tool to address risks to the US economy. The S&P500 is currently down 0.4%, although commodities are fi rmer (CRB index +2.0%, oil +1.4%, copper +0.8%, and gold +0.3%), possibly on expectations China may ease further. US 10yr treasury yields are 4bp lower at 1.51%, closing in on the record low of 1.44%.
Most currencies are little changed from a day ago. The US dollar index (DXY) dribbled slightly lower last night. EUR ground slightly higher from 1.2272 to 1.2324. USD/JPY slipped from 79.77 to 79.51. AUD made an intraday low of 1.0155 during the London morning and ground higher thereafter, currently at 1.0205. NZD similarly ground from 0.7929 to 0.7972. AUD/NZD remained inside a 1.2790-1.2820 range
Economic wrap
Canadian quarterly surveys. The Q2 business outlook survey future sales index fell from 35 to 15 in Q2, reversing half of the Q1 gain - becoming a common theme in business surveys across north America. The BoC senior loan offi cer survey moved from –16.9 to –10.8, indicating slightly less easy credit conditions than in Q1.
Euroland Sentix investor confi dence slips from –28.9 to –29.6 in Jul. This was weaker than all forecasts except Westpac’s –32 and indeed closer to ours than the consensus of –26.6. The survey was taken last Friday and Saturday, when the German stock market fell 2%, the Spanish bank recapitalisation plan looked like adding to Spanish sovereign debt after all, and when US payrolls were soft. In related news, the BdF business sentiment indicator slipped further from 92 to 91, its lowest since the recession ended three years ago and still around the level it was running in the early quarters of recession in 2008. This is the sort of weak data needed (plus lots more) to eventually prompt the ECB to fi re up the SMP (bond purchase program) again. On that point, ECB chief Draghi reiterated that the ECB Council will “do everything to maintain price stability - from both sides... [and ECB staff ] are searching for actions that could attenuate the current crisis”.
German exports rise 3.9% in May, reversing April’s 1.7% fall and their fastest rise since March last year. Germany, it seems, can still surprise with the occasional robust activity statistic.
New Greek government wins confi dence vote. The three party coalition now administers a deeply recessed economy without access to fi nancial markets, reliant on external bailouts that come with stringent conditions. The administration will seek leniency with regard to meeting those conditions going forward.
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