World stock markets slid on Wednesday as a decline in Chinese inflation and disappointing German economic data prompted concerns global growth may be slowing. Worries over high valuations also weighed on stock prices. The benchmark MSCI Asia Pacific Index fell 0.7% today after valuations jumped to their highest level since December on July 7, while the Stoxx Europe 600 Index inched lower by 0.1% after sliding 1.4% yesterday. Developing-country stocks dropped for the first time in eight days with the benchmark MSCI Emerging Market Index losing 0.5% after rising to a 16-month high level yesterday.
Portuguese government bonds tumbled, leading a decline in Euro Area’s periphery sovereign debt, on concerns about the financial health of one of the nation’s largest financial groups, Espirito Santo Financial Group (ESGF). The yield on Portuguese 10-year bonds soared 19 basis points (bps) to a six-week high of 3.84%, the largest increase since early September, after Banque Privee Espiriti Santo, a bank unit of ESGF, missed payments on short-term debt, reawakening fears that some of the banks in the Euro Area region remain vulnerable. Italy’s 10-year yield climbed 5 bps to 2.90%, while Spain’s 10-year yield rose 4 bps to 2.76%.
High Income Economies
U.S. consumer credit increased 7.2% (y/y) or $19.6 billion in May, after surging up by a revised $26.1 billion in April. The increase was partly due to continued growth in non-revolving credit such as student loans and car loans, which rose 9.3% or $17.8 billion in May, after rising by $17.3 billion in April. Economists had expected credit to increase by about $20.0 billion compared to the $26.8 billion jump originally reported for April.
Sweden's unemployment rate increased to 4.1% in June from 3.9% in May, which was the lowest level since 2008. The youth unemployment rate was 14.4% in June, down by 2.3 percentage points from June 2013.
Preliminary estimates showed that South Korea's money supply M2 growth increased 6.0% (y/y) in May, following the 5.5% increase in April. Meanwhile, L money supply, the broadest measure of the money supply, surged 7.7% in May, faster than April's 6.9% increase.
East Asia and Pacific
China’s annual consumer price inflation slowed to 2.3% in June following a 2.5% increase in May, standing well below the central bank’s target of 4.0% for 2014, as food prices rose at a slower pace. Year-on-year food prices rose by 3.7% in June, compared with 4.1% in May; while non-food prices increased by 1.7%. On a monthly basis, consumer prices fell 0.1% in June reversing a 0.1% increase in May. Meanwhile producer prices fell by 1.1% (y/y) following a 1.4% (y/y) drop in May.
Latin America and Caribbean
Mexico’s annual consumer price inflation accelerated less than expected to 3.75% in June, up from 3.51% in May, nearing the central bank’s upper limit of 4% for 2014, due to higher food prices. Economists’ forecast was for inflation to reach 3.8% (y/y) in June. Food price inflation rose sharply to 4.14% (y/y) in June, following a 2.72% increase in May. Core inflation, which excludes volatile food and energy prices, rose to 3.09% (y/y) from 3.0% in May. Month-on-month consumer prices rose 0.17% after falling 0.32% in May; and core inflation went up 0.21%, rising from 0.09% in May.
Ghana’s annual consumer price inflation rose further to 15.0% in June, a four-year high, up from 14.8% in May, remaining well above the government’s target of 9.5%+/-2% for 2014. The biggest upward pressure came from the cost of housing, water, electricity, gas and other fuel which rose 53.6% (y/y).
At its meeting of July 8th 2014, Kenya’s central bank decided to keep its benchmark interest rate unchanged at 8.5% for the fourteenth consecutive meeting, noting that inflation remains within the target range. The new Kenya Bank’s reference rate, which will be the base rate for all commercial banks’ lending, was set at 9.13%