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BOV Market Watch - Week Ending 27 May 2016
27 May 2016
Eurozone unlocks funds to Greece as IMF eases stance on debt relief. Greece has agreed to a deal to unlock a further 10.3bn euros in
loans from its international creditors, after talks in Brussels. Eurozone Finance Ministers agreed on debt relief for Greece, lengthening the
repayment term and capping interest rates. Greece required this tranche of debt to meet the repayments which are due in July. The country’s total debt burden amounts to more than €300bn – about 180% of its annual Gross Domestic Product (GDP) which, according to the International Monetary Fund (IMF), is unsustainable. The IMF considers debt relief necessary, but Germany in particular was opposed. Now that an agreement has been reached, the IMF will consider to contribute to the bailout. Eurozone Finance Ministers said that the agreement had been made possible because of Greece’s economic reforms which they called a “breakthrough”. This weeks’ deal does not lessen the amount Greece has to repay. Instead, debt relief will be phased in from 2018, after Germany’s general election late next year.

U.S. new home sales hit eight-year high, point to firming economy. A report released this week by the Commerce Department showed a
substantial rebound in new home sales in the month of April, after an unforeseen drop in the previous month. New home sales jumped by 16.6% to an annual rate of 619,000 in April from a reviewed 531,000 in March. Economists had forecasted new home sales to rise by 2.3% to an increase of 523,000 from the 511,000 initially reported for the prior month. Due to the more than the expected rise, new home sales are at their highest level since hitting 627,000 in January of 2008. New home sales in the West and South also increased by 18.8% and 15.8% respectively, while sales in the Midwest fell by 4.8%.

Eurozone private sector growth weakest in 16 months. Survey results from Markit published this week showed that, the Eurozone private
sector growth weakened to a 16-month low in May. The preliminary purchasing manager's index (PMI) index fell to 52.9 in May from 53.0 in April, failing to meet forecasts to rise to 53.2. The services PMI was expected to rise to 53.3, while it held steady at 53.1. The manufacturing PMI fell from 51.7 in April to 51.5 in May. Analysts had anticipated the score to rise to 51.9. Markit's Chief Economist Chris Williamson said, "A disappointing flash Eurozone PMI for May adds further to the suggestion that the robust pace of economic growth seen in the first quarter will prove temporary.” Williamson added that the "The PMI is signaling lacklustre GDP growth of only 0.3% in the second quarter".

German ZEW economic sentiment collapses in May. Industry data published this week showed that the German economic sentiment
unexpectedly dropped in May, amongst continuous concerns over the global economy and uncertainties linked to the “Brexit” referendum. The ZEW Indicator of Economic Sentiment for Germany showed that the German economic sentiment declined by 4.8 points to 6.4 this month from April's reading of 11.2. Economists had forecasted the index to rise by 0.8 points to 12.0 in May. The Current Conditions Index rose to 53.1 this month from 47.7 in April, exceeding expectations for a reading of 48.9. In the meantime, the index of Eurozone economic sentiment fell from 21.5 in April to 16.8 in May, missing projections for 23.4. On the index, a level above zero indicates optimism, a level below zero indicates pessimism.

Hungary central bank cuts rates for third month. This week, in line with analyst’s expectations, Hungary’s central bank cut its interest rate
for a third straight month. With effect from May 25, the Monetary Council of the Magyar Nemzeti Bank slashed the base rate by 15 basis points to 0.90%. The bank had reduced the rate in March, after keeping it steady for seven successive policy meetings. In April, the interest rate was slashed by 15 basis points. In March, the overnight deposit rate was cut to negative and was left unchanged at minus 0.05%. The lending rate was reduced from 1.30% to 1.15%. During the first three months of the year, economic growth slowed sharply, showing the slowest expansion since the growth trend began in the second quarter of 2013.

Japan's exports decline speeds up in April, falling 10.1% on-year. Official data published this week showed that the world's third-largest
economy recorded its seventh straight month of falling exports in April, adding to the nation’s gloomy outlook. Exports fell by 10.1% on-year in April, in line with forecasts and worse than March’s 6.8% drop. Imports fell by an annual 23% worse than the projected fall of 19% according to a Reuter’s poll and exceeding the previous month’s 14.9% drop. That left the country with a trade surplus of 823 billion yen ($7.48 billion), less than expectations for a 492.8 billion yen surplus.

Australia Jobless Rate Unchanged At 5.7%. The Australian Bureau of Statistics said last week that the unemployment rate was stable at
seasonally amended 5.7% in April. That has not changed from the March reading though it had outperformed the forecasts of 5.8%. In April, the Australian economy added 10,800 jobs, missing projections for 12,000 succeeding the addition of 26,100 in March. In April 9,300 full time jobs were lost following the downwardly reviewed 10,000 loss in March (initially a loss of 8,800). Part time jobs increase by 20,200 after an increase of 34,900 in the previous month. The participation rate, which refers to the number of people working or actively looking for a job was 64.8%. Employment rose by 10,800 to 11,917,200. Full time employment fell by 9,300 to 8,165,600 whilst part time employment increased by 20,200 to 3,751,600.
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