Wrap up - last week
‘Bear-nanke’ comments cause slump in global equity markets
Global equity markets, government bonds and commodity markets all finished the week lower after US Federal Reserve (Fed) chairman Ben Bernanke announced that the Fed would begin to trim its monthly bond purchases to $65 billion in September and aim to end buying in June 2014. The yield on US treasuries rose to 2.51%, while gold dropped below $1,300 an ounce to the lowest level since September 2010.
In the eurozone, Greek political uncertainty and an impasse between the country’s troika of official sector lenders drove Greek bond yields sharply higher at the end of the week. Unless eurozone leaders can fill a €3-4bn shortfall in Greece’s €172bn rescue programme, the International Monetary Fund is preparing to suspend aid payments to Greece by the end of July. Meanwhile, eurozone finance ministers agreed guidelines on how the eurozone's emergency bailout fund can inject money directly into struggling banks. In the UK, retail sales recorded a larger-than-expected 2.1% month-on-month rise in May, helped by a strong increase in food sales. Markit's composite purchasing managers' index for the eurozone rose to 48.9 in June, up from 47.7 in May.
Elsewhere, Russia’s Rosneft has signed a deal to supply China with $270bn worth of oil over the next 25 years. Russia is trying to exploit China’s growing appetite for energy, amid stagnant demand from Europe. China narrowly avoided a severe cash crunch at the end of the week, with money rates falling after reports that the People’s Bank of China had acted to alleviate market stresses. Interbank conditions remain tight as the central bank continues to compel financial institutions to reduce their borrowing.
Shaping the markets – this week
Economic indicators in Japan expected to improve?
It is a relatively quiet week for data in the US this week. On Tuesday, the S&P/Case-Shiller Index is expected to show that home selling prices moved higher in April. Wednesday’s third release of first quarter real gross domestic product (GDP) is likely to remain at a seasonally adjusted annual rate of 2.4%. On Thursday, positive news on the housing market may continue with the Pending Home Sales Index expected to close in on its highest level since 2007.
In Europe, Tuesday may see a slight rise in June’s business confidence indicator for France. On Thursday, Spanish inflation is expected to move higher in June due to pressure from energy prices while non-energy goods and services are expected to remain broadly unchanged. On the same day, German unemployment is anticipated to remain unchanged at a rate of 6.9% in June. Meanwhile, in the UK, the third revision of GDP is likely to be confirmed at 0.3% quarter-on-quarter. The Euro area Economic Sentiment Indicator is expected to rise for a second consecutive month from 89.4 to 90.4 in June. On Friday, French consumer spending may show further declines due to low consumer confidence and a collapse in new car registrations. Meanwhile, Italian and German annual inflation figures are both expected to show increases in June.
In Japan, Friday’s May labour market reports are expected to show the unemployment situation is gradually improving from a rate of 4.1% since March to 4.0% in May. Consumer prices are likely to show another rise in May due to a number of upward energy price pressures. Meanwhile, May industrial production is expected to show a continuing moderate recovery, with three consecutive months of improvement since February.
