German Exports at Risk

Despite the pervasive weakness in the Euro keeping German exports competitive, industrial production failed to grow in May as concerns about the downturn in global trade continue to spread. Even though Greece has proven a looming risk factor, this is not the first sign that the German manufacturing machine is slowing. Factory orders released yesterday morning showed that orders contracted -0.20% in May after climbing 2.20% in the prior month. Aside from the growing softness in German exports, eyes are still trained on Greece as capital controls and the holiday are extended. Yesterday marked the installation of newly ordained Greek Finance Minister Euclid Tsakalotos following the departure of Yanis Varoufakis. While unlikely to make a substantial difference in creditor negotiations, it marks a new leg of the crisis. Indices were most impacted yesterday as the EURUSD pair filled in the gap lower before resuming the trend lower overnight.

In the latest move designed to offset the wave of instability hitting Chinese stocks, policymakers have added tools to combat the sharp volatility that has become a daily phenomenon. After yesterday’s inaugural experiment in stock buying early at the open in the Shanghai Composite, the resulting downside was not what policymakers had anticipated. Fast forward to today’s price action and regulators and the People’s Bank of China were unable to keep stocks bid with the Shanghai Composite currently trading -1.51% lower and the Hong Kong Hang Seng down -0.72%. This comes amid continued deleveraging with margin debt shrinking for 11-straight sessions as policymakers attempt to add more structure to the market to ensure less rapid swings in momentum. So far efforts have fallen short with the technology heavy ChiNext index down over 40% from highs experienced the other month as regulators place a ban on pension funds from selling stocks.