Lower-rated euro zone bonds suffer as cracks widen between Europe and U.S.
Lower-rated southern European government bond prices fell on Monday after German Chancellor Angela Merkel warned of worsening relations between Europe and some of its allies, in particular the United States and Britain. Merkel said on Sunday that Europe could no longer completely rely on some nations, pointing to bruising meetings of the G7 wealthy nations and NATO last week. Concerns over trade among developed markets have increased over the past year after the UK voted to leave the European Union last June and Republican Donald Trump became U.S. President in November, partly on a protectionist agenda. These issues resurfaced at a two-day summit of the G7 group of some of the world’s largest economies. “Merkel’s comments point to political woes. It is something which investors have to digest,” said DZ Bank strategist Daniel Lenz. “It is a slightly risk-off mode this morning but again it is thin trading today so you could see this change very quickly,” he said, referring to the fact that U.S. and British investors are on holiday. Italian, Spanish and Portuguese government bond yields rose 3-5 basis points on Monday morning, underperforming other countries in the bloc.
China April industrial profits up 14 percent but slowing pace stokes economy worries
Profits earned by Chinese industrial firms rose 14.0 percent in April from a year earlier, official data showed on Saturday, slowing from March’s pace and adding to concerns that the world’s second-largest economy may be losing steam. Profits in April rose to 572.78 billion yuan ($83.59 billion), the National Bureau of Statistics (NBS) said on its website. Profits had surged 23.8 percent in March over the same month of last year. For the first fourth months of the year, profits reached 2.28 trillion yuan, up 24.4 percent from the same period last year and compared with a growth of 28.3 percent in the first quarter. After a roaring start to the year, industrial earnings had been expected to soften in April as prices of iron ore, steel and other commodities fell sharply, and as growth in factory output, investment and retail sales tapered off. A building boom, fuelled by a government infrastructure spree and a heated housing market, has boosted demand and prices for materials from steel to cement, giving China’s long ailing “smokestack” industries more cash flow to chip away at a mountain of debt.
As Fed raises rates, aim is not to roil markets, Williams says
The U.S. economy is at or near the Federal Reserve’s goals of full employment and stable prices, San Francisco Fed President John Williams said, adding that the U.S. central bank wants to make sure markets stay calm as it slowly returns interest-rate policy to normal. “If you remember nothing else I’ve shared with you today, I hope you’ll remember this: The last thing we want to do is to fuel unnecessary or avoidable volatility or disruption – whether we’re talking about domestic markets or international markets,” Williams said in remarks prepared for delivery Monday to the Symposium on Asian Banking and Finance, co-hosted with the Monetary Authority of Singapore. With the economy at full employment and inflation expected to reach the Fed’s 2-percent goal by next year, the Fed needs to keep raising U.S. interest rates gradually or risk overheating the economy, Williams said. The Fed raised rates in March, and at the time telegraphed a plan to lift them two more times this year, a pace that Williams last week told Reuters he thinks makes sense.