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Prospects Daily: European stocks advance while dollar gains on higher U.S. yields, U.S. June consumer price inflation in line with estimates, South Africa’s leading index rises slightly

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Financial Markets

European stocks rose on Tuesday, rebounding from three consecutive days of losses, amid a global rebound in risk appetite, helped by signs of reduced tensions over the downed Malaysian Airlines plane. The Stoxx Europe 600 Index rose 1.3% in mid-afternoon trading in London after falling 1.5% in the past three days amid tensions over the Ukraine crisis and as intense fighting in Gaza unsettled investors.

The yield on benchmark U.S. 10-year Treasuries firmed on Tuesday, inching up 1.0 basis point to 2.487, on the view that the slower-than-expected rise in core inflation in June was not enough to change market’s expectations that the Federal Reserve will continue its asset purchase program and raise interest rate in the latter half of 2015. The euro fell 0.4% against the dollar to an eight-month low $1.3460. The Japanese and Swiss franc, into which investors had sought refuge, also fell against the dollar. The dollar rose 0.1% to 101.52 yen and 0.5% to 0.902 Swiss francs.

High Income Economies

U.S.’s annual consumer price inflation was steady at 2.1% in June, the same as in May. The increase in consumer prices was primarily driven by gasoline prices, which rose 3.3% (y/y). On a monthly basis, consumer prices rose 0.3% in June, in line with expectations, following a 0.4% increase in May. Core inflation, which excludes food and energy prices, slowed to 1.9% (y/y) in June from 2.0% (y/y) in May, and to 0.1% (m/m) from 0.3% (m/m). Economists’ forecast was for monthly core inflation to edge up 0.2% in June

Germany’s leading economic index rose for the second consecutive month in May by 0.3% (m/m) after increasing 0.2% in April. Out of the seven components, six contributed positively to the index in May, with consumer confidence and yield spread making the largest contributions. Meanwhile, the coincident index fell for the second consecutive month, dropping 0.2% in May following a 0.1% decline in April.

Japan’s government revised its GDP growth forecast for fiscal year 2014 to 1.2% from 1.4% previously, citing weak exports and subdued demand following April’s sales tax hike. Last week, Japan’s central bank projected a 1.0% GDP growth for fiscal year 2014 and 1.5% for fiscal year 2015.

Developing Economies

Europe and Central Asia

At its meeting of July 22nd 2014, Hungary’s central bank cut the policy rate by 20 basis points, more than economists’ forecast for a rate cut of 10 basis points, to a record low 2.10%. The central bank has now cut the policy rate for 24 consecutive months.

Latin America and Caribbean

Mexico’s retails sales rose 1.6% (y/y) in May, beating economists’ forecast for a 1.0% increase, following a 0.4% fall in April. On a seasonally adjusted basis, retail sales fell marginally by 0.06% compared to the previous month. Meanwhile wholesale trade grew 0.5% (y/y) in May, rising from a 2.4% decline in April.

Sub-Saharan Africa

South Africa’s leading economic index, which measures perception on future economic conditions, inched up 0.1 percentage points (m/m) to 99.6 in May, reflecting an increase in the 12-month percentage change in job advertisement space and a rise in the number of residential building plans passed. Year-on-year the leading index fell 1.2% in May following a 1.5% decline in April.

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