European Equities Tumble

Daily Analysis - 07/07/2017

ECB Minutes Spook Investors


Equity markets around Europe fell on Thursday after minutes from the last European Central Bank policymakers meet showed the central bank was open to adopting further steps to reduce its monetary stimulus. The minutes also revealed the bank had effectively closed the door for any future rate cuts.

Easy Money on the Way Out

The June 7-8 meeting discussed the possibility of the ECB abandoning its long-standing vow to boost the 2.3 trillion euros bond buyback program.

Eventually they decided against it after concluding that economic recovery in the region was yet to yield higher inflation – ECB’s main policy objective. Euro zone inflation fell to 1.30% in June, quite some distance away from the bank’s stated target of just under 2.00%.

The prospect of the ECB cutting off easy money has been dominating the markets’ psyche since President Mario Draghi's recent hawkish comments, hurting equities and nudging bond yields higher.

The latest minutes further reinforced those fears. ECB policymakers will next meet on July 20. DAX September futures ended Thursday at 12340, just above a 10-week low.


Oil Rally Fades on Supply Concerns

Oil prices gave up gains made in the previous session to trade 1.00% lower on Friday as news of a rise in U.S. production outweighed positive sentiment generated from falling crude inventories in the world’s biggest consumer. U.S. crude stockpiles fell by 6.3 million barrels in the week ended June 30 to stand at 502.9 million barrels, data from the U.S. Energy Information Administration showed Thursday.

However, supply concerns resurfaced after weekly oil production in the country gained 1.00% to 9.34 million barrels per day.

The rise in U.S. output comes close on the heels of data that showed supplies from the Organisation of the Petroleum Exporting Countries climbed for a second straight month in June. U.S. Crude August futures were last seen around the $44.90 a barrel-mark.


Japanese Real Wages Grow

Japanese real wages increased for the first time in five months in May, data from the country’s labour ministry showed Friday. Adjusted for inflation, wages at Japanese firms with at least five employees rose 0.10% from a year ago.

On a nominal basis, average cash earnings for May climbed to 270,240 yen ($2,380), up 0.70%. The rise in real wages, even though marginal, suggests the tightness in Japan's labour market is beginning to translate in to higher pay.

This should be encouraging for the Bank of Japan, which is hoping that an increase in pay would help spur private consumption and push inflation toward its 2.00% goal.

NZDJPY is reversing from a weekly high to last trade around 82.700 in early Friday trade.


Canada Building Permits Soar

Building permits in Canada surged to their third-highest level on record in May, buoyed by increased demand for residential construction in the country's most populous province, Ontario.

On a seasonally adjusted basis, the total value of building permits issued by municipalities jumped 8.90% to CAD 7.74 billion ($5.96 billion), Statistics Canada said late Thursday.

Economists at Royal Bank of Canada were expecting a 1.00% rise. The federal statistical agency also revised the April figure from a 0.20% decline to a gain of 0.50%. On a yearly basis, permits issued increased 10.80%.

Building permits are a leading indicator of construction activity. However, the data tends to be volatile on a month-over-month basis. CADCHF is largely unchanged early Friday to currently hover around 0.74000.


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