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Prospects Daily: Global equities move higher amid the latest EU agreement

Global Macroeconomics Team's picture

Important developments today:

1. Global equities move higher amid the latest EU agreement

2. May industrial production output mixed among major European economies.

Global equities move higher amid the latest EU agreement. Global stocks rose for the first time in five days on Tuesday as European finance ministers agreed to give Spain an extra year (i.e. until 2014) to achieve its deficit reduction targets and set the parameters for emergency loans to shore up the country’s battered banks. European leaders promised to make available €30 billion ($36.94 billion) by the end of July to jump-start as much a €100 billion ($123 billion) bailout of Spain’s banks. The euro-zone rescue funds will recapitalize the Spanish banks directly without requiring government guarantee. The benchmark MSCI All-Country World Index rose 0.5%, with the Standard & Poor’s Index advancing 0.5% and Stoxx Europe 600 Index climbing 1.2%. Emerging-market stocks advanced as well, but Asian stocks edged lower with China’s benchmark index slumping to the lowest level since January 6th. Chinese equities lost after the country’s slowing imports prompted concerns the slowdown in the world’s second-largest economy is deepening.

May industrial production output mixed among major European economies. In France, industrial production dropped 1.9 percent in May, which reversed the 1.4 percent increase in April. Manufacturing production dropped by 1 percent compared with a 0.9 percent reduction in April. The Bank of France said Monday that the French economy is likely to have shrunk 0.1 percent in the second quarter of 2012 after zero growth in the first three months of the year. This confirmed fears that the euro area’s second-largest economy is heading for its first quarterly contraction in three years reflecting the overall weakness in economic activity and falling demand both domestically and globally. Furthermore, in the United Kingdom manufacturing output rose 1.2 percent in May, benefitting in part from an extra working day. This was the highest monthly increase in 2012. In Italy, industrial output also increased in May, gaining 0.8 percent from April, when it fell 1.9 percent.

Among Emerging Markets

In East Asia and Pacific, in China, both export and import growth slowed in June, export growth slowing to 11.3 percent from a year earlier, down from May’s 15.3 percent pace and imports increased 6.3 per cent from a year earlier, half of May’s 12.7 per cent. As a result China’s trade surplus reached a three-year high of $31.7 billion, nearly double the trade surplus registered in May.

In Europe and Central Asia, in Russia, the Duma ratified Russia’s WTO accession protocol. The protocol was supported by MPs of the ruling United Russia party, and was opposed by the opposition parties. Russia signed a protocol on accession to the World Trade Organization on December 16, 2011 after 18 years of talks and had to complete the ratification process by July 23 to avoid the need to renegotiate the entire agreement.