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Prospects Daily: Global stock market indexes fall amid Gaza and Ukraine concerns, U.K.’s consumer confidence falls for first time in 2014, China signs currency swap agreement with Switzerland

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Financial Markets

Major global stock market indexes fell while bond prices rallied on Monday amid worries over the Gaza strip and Ukraine. The Stoxx Europe 600 Index fell 0.5% to 337.95 at the close in London following a 0.8% gain last week. U.K.’s FTSE 100 declined 0.3%, France’s CAC40 lost 0.7%, and Germany Dax fell 1.1% to its lowest level since May 9. In the U.S., the Dow Jones Industrial Average fell 115 points, or 0.7% to below 17,000 and the S&P 500 index retreated 12 points or 0.6% in mid-afternoon.

Meanwhile, prices of U.S. and European debt rose. German 10-year yields fell to about 1.14%, while the yield on benchmark 10-year Treasury note eased to 2.465%. In the foreign exchange market the safe-haven Japanese yen and Swiss franc gained. The dollar was slightly lower at 101.30 yen and dipped against the Swiss franc, but rose against the euro.

High Income Economies

Germany’s producer prices decreased for the second consecutive month but at a slower pace in June, falling by 0.70% (y/y), following a 0.8% decline in May. Contributing to the June producer price reading, energy prices fell 2.4% (y/y) while prices of intermediate goods declined 1.1% (y/y). Upward pressure came from prices of consumer goods and capital goods, which rose 0.9% (y/y) and 0.5% (y/y) respectively. On a monthly basis, producer prices were flat in June after decreasing 0.2% (m/m) in May.

Italy’s industrial orders fell for the first time in three months in May, decreasing by a seasonally adjusted 2.1% (m/m) following a 3.6% increase in April. International orders fell sharply by 4.5% (m/m) reversing April’s 9.2% (m/m) increase, while domestic demand declined at a slower 0.2% (m/m) pace from April’s 0.5% decrease. Year-on-year, industrial orders fell a non-seasonally adjusted 2.5% in May, following a 6.2% (y/y) increase in April.

U.K.’s consumer confidence index fell in June for the first in 2014, dropping 1.0 percentage point to 145. However, consumer spending growth on essentials remained stable, coming in at around 1.0% higher than in June of 2013. The easing of the consumer confidence index followed a drop of the Household Finance Index in June and a decline in retail spending growth to its lowest rate since 2011. However, the record level gain in employment in the three months to May suggests that the economic recovery remains robust.

Developing Economies

East Asia and Pacific

China signed a three-year bilateral currency swap agreement amounting to 150bn yuan ($24.17bn) with Swiss central bank as it continued to promote the use of the yuan for trade and investment and as a reserve currency. The deal is designed to provide liquidity support for development of the offshore yuan market in Switzerland, and will allow the Swiss central bank to invest up to 15bn yuan in China’s interbank bond market under a quota given by China’s central bank.

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