The bulls came back into control of the Chinese equity markets today following yesterday’s nearly 5 percent gain for the Shanghai Composite Index. The main cause for concern on the Chinese equity markets however, is the tech-heavy Shenzhen Composite, which rose today by nearly 4 percent to hit a new record high. Investors in the mainland continue to rush to the equity markets in advance of anticipated fresh easing measures by the People’s Bank of China. Investor enthusiasm in Hong Kong was more muted today, as the Hang Seng Index fell by over 0.5 percent. Despite rising skepticism, oracles calling for a bubble to burst have yet to be proven right.
German jobless level falls to multidecade low. The headline German unemployment rate contracted to the lowest level in 24 years in May, according to data released today by the country’s Federal Labor Office. At 6.4 percent, the number of jobless in Europe’s largest economy is now lower than any point since the reunification of East and West Germany in 1990.
Consumer prices rise in Europe. May consumer inflation data for the euro zone released today by Eurostat rose marginally at a year-over-year pace of 0.3 percent, breaking a string of five consecutive contractions. Core prices, which exclude volatile fuel and food commodities, rose by roughly 1 percent. Separately, producer prices remained in negative territory at a contraction of 2.2 percent compared to May 2014.
India cuts rates. As had been widely predicted, the Reserve Bank of India today announced a 25-basis-point reduction in its benchmark lending rate to 7.25 percent, the third reduction year-to-date. April consumer inflation index levels for the nation hovered below 5 percent, within the central bank’s target band on the back of weaker fuel costs.
Greek saga drags on. In a closed-door meeting last night, German Chancellor Angela Merkel and French President François Hollande joined European Central Bank President Mario Draghi and International Monetary Fund Managing Director Christine Lagarde to discuss the seemingly never-ending Greek default crisis. The government of Prime Minister Alexis Tsipras released a defiant statement today claiming that Athens had made a reasonable offer to its creditors and that there would be no additional concessions.
Yen drops past milestone. The Japanese yen fell below 125 to the U.S. dollar for the first time since 2002 in trading today. Separately, Kyushu Electric Power announced that the prelaunch of the Sendai nuclear power plant in southwestern Japan would be delayed until mid-August from its previous late July launch target, pushing back the date of the first such power plant to be redeployed since the 2011 Fukushima disaster.
Portfolio Perspective: Yen Back in the Spotlight — Albert Edwards, Société Générale
The yen has moved back to center stage.
In September 2014, when the yen broke below the 15-year trendline around 105 to the U.S. dollar, we highlighted the dollar/yen chart as the one investors should be watching. The break of 122 yen to the dollar just occurred. I think yen weakness will become a dominant driver of markets and economies. We at Société Générale reiterate the particular vulnerability of China to yen weakness, in a replay of the events that led up to the devaluation of the Thai baht in 1997. China has big deflationary problems and cannot tolerate any further rise in the renminbi. Indeed, on one key measure, China is already in outright deflation.
Albert Edwards is co-head of global strategy for Société Générale in London.
