Tame inflation comforts uneasy bond markets as ECB count down begins
Euro zone government bond yields fell on Monday, as tepid inflation numbers lifted expectations of a cautious stance at this week’s European Central Bank meeting. The ECB meets on Thursday, three weeks after comments from central bank chief Mario Draghi that were seen as opening the door to policy tweaks in the coming months triggered a jump in bond yields and the euro. While borrowing costs remain at elevated levels, weak U.S. data and subdued euro zone inflation have provided some comfort to bond markets, on edge that an era of ultra-loose monetary policy is drawing to a close. Data on Monday confirmed that consumer prices in the euro zone rose 1.3 percent year-on-year in June, in line with market expectations and decelerating form 1.4 percent in May. The core measure, which strips out unprocessed food and energy, edged up to 1.2 percent on the year but remains low.
China’s strong second-quarter GDP growth paves way for deeper reforms
China’s economy expanded faster-than-expected in the second quarter, setting the country on course to comfortably meet its 2017 growth target and giving policymakers room to tackle big economic challenges ahead of key leadership changes later this year. The boost to growth was in part driven by firmer exports and production, in particular steel, which could heighten trade tensions as the United States and China begin economic talks this week. U.S. President Donald Trump has made the U.S. trade deficit with China a top agenda item in bilateral talks and has also flagged the steel trade as a point of contention. China’s gross domestic product rose 6.9 percent in the second quarter from a year earlier, the same rate as the first quarter, the National Bureau of Statistics said on Monday. That was higher than analysts’ expectations of a 6.8 percent expansion.
New U.S. Subprime Boom, Same Old Sins: Auto Defaults Are Soaring
It’s classic subprime: hasty loans, rapid defaults, and, at times, outright fraud. Only this isn’t the U.S. housing market circa 2007. It’s the U.S. auto industry circa 2017. A decade after the mortgage debacle, the financial industry has embraced another type of subprime debt: auto loans. And, like last time, the risks are spreading as they’re bundled into securities for investors worldwide. Subprime car loans have been around for ages, and no one is suggesting they’ll unleash the next crisis. But since the Great Recession, business has exploded. In 2009, $2.5 billion of new subprime auto bonds were sold. In 2016, $26 billion were, topping average pre-crisis levels, according to Wells Fargo & Co. Few things capture this phenomenon like the partnership between Fiat Chrysler Automobiles NV and Banco Santander SA. Since 2013, as U.S. car sales soared, the two have built one of the industry’s most powerful subprime machines.