The majors are mixed this morning after the beginning of the European trading session following an overall mixed and mediocre batch of data in the overnight. The Australian labor market got back on track in July as its Unemployment Rate dropped by one-tenth of one percent, while the very comparable New Zealand economy saw its Unemployment Rate spike by three-tenths of one percent, perhaps a sign of burgeoning weakness in the region. Supporting this notion was the soft round of Chinese data for July. The Chinese Consumer Price Index fell below a yearly pace of +2.0% for the first time since January 2012, while the Producer Price Index is showing its steepest rate of deflation since November 2009. When considering the relationship between inflation and growth in China (inflation is among the best leading indicators), one can’t afford to ignore stumbling Asian titan any longer.
Looking into Southern Europe, data was unsupportive as well, as the Greek Unemployment Rate ticked higher to 23.1%, while the youth rate moved to 54.9% in May. Accordingly, we believe that further social upheaval in Greece will result in new elections over the coming months, which represents a forgotten roadblock on the road to solving the European sovereign debt crisis.
Amid the ‘calm’ that has developed the past week, it appears that market participants have become somewhat complacent. With no new measures or hints of new measures being set forth by any of the major supranational European bodies, yields in the periphery have started to rise once again (the profit taking period is over; selling pressure is building). The Italian 2-year note yield has risen to 3.263% (+10.3-bps) while the Spanish 2-year note yield has moved higher to 3.799% (+6.2-bps). Similarly, the Italian 10-year note yield has climbed to 5.858% (+1.3-bps) while the Spanish 10-year note yield has risen to 6.818% (+41.6-bps); higher yields imply lower prices.
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