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- A spike in U.S. and German debt yields reduced the appetite for riskier assets to keep Asian share markets subdued on Wednesday, while the euro held gains made on upbeat euro zone inflation data and on hopes that Greece will reach a deal with creditors. U.S. Treasury yields spiked to two-week highs overnight after German Bund yields soared on stronger-than-expected euro zone inflation data. Consumer prices rose 0.3 percent year-on-year in May, beating forecasts for a 0.2 percent increase. Higher bond yields tend to dent the attraction of stock investments relative to bonds, as seen last month during a global rout in debt markets. The inflation data and corresponding rise in yields boosted the euro as well. The common currency gained further support when the European Central Bank, the European Commission and the International Monetary Fund agreed on the terms of a cash-for-reform deal to be put to Greece in a bid to conclude four months of debt stalemate. It was far from clear if the leftist government of Prime Minister Alexis Tsipras would accept the plan, but markets took it as an encouraging step forward. Focus for the time being was on the ECB’s policy meeting, with the central bank widely expected to reaffirm its commitment to its quantitative easing scheme.
- The Australian dollar rallied after strong GDP data further cooled prospects of a near-term interest rate cut. The Australian dollar, already on a bullish footing after the Reserve Bank of Australia (RBA) took a neutral stance on interest rates Tuesday, got a further lift after data showed the country’s economy topped forecasts and grew at its fastest in a year in January-March. Australia’s economy grew at the fastest pace in a year last quarter as the nation shipped more resources abroad, built more homes and bought more consumer goods, an upbeat surprise that sent the local dollar bounding ahead.
- Crude oil prices fell on Wednesday as oversupply weighed on markets, with OPEC not expected to announce a production cut at its meeting on Friday. Core Gulf members of the Organization of the Petroleum Exporting Countries (OPEC), which controls over 40 percent of the world’s crude production, have a consensus to maintain the group’s oil output at its meeting this week, a senior Gulf OPEC delegate told Reuters in Vienna on Tuesday. High production by OPEC, but also from other regions like U.S. shale producers and Russia, has contributed to oversupply and left tankers filled with millions of barrels of oil without buyers. Analysts from Citi said this week that given OPEC was widely expected to maintain its output policies, the global surplus would last well into 2016.
- Activity in China’s services sector accelerated in May as new business rose at the fastest pace in three years, a private survey showed on Wednesday, a rare piece of good news for policymakers struggling to reviving a cooling economy. Still, economists remain cautious on China’s overall economic outlook, as credit growth remains weak and manufacturing stagnates, reinforcing views that authorities will have to roll out more stimulus to avert a sharper slowdown. The headline HSBC/Markit Purchasing Managers’ Index (PMI) for May was 53.5, up from 52.9 in April and well above the 50-point level that separates expansion from contraction. The new business sub-component was at 54.4, up from 52.8 in April and the highest reading since 54.7 in May 2012. Employment at services firms grew at the fastest rate since January 2013, the survey showed, another encouraging sign for policymakers as layoffs continue in the manufacturing.