Portugal's largest bank starts to wobble, scaring markets
Global equity markets were mostly weaker overnight, as investors sought the safety of government bonds. Investor nervousness was fuelled by worries about Portugal's largest bank, Banco Espirito Santo (please refer to the Europe section for more information).
The Dow Jones ended 0.4% lower and the S&P 500 index also closed down 0.4%.
US 10-year treasury yields initially fell from 2.55% to a one-month low of 2.49%, as a flight to safety pushed up bond prices.
The flight to quality was driven by worries about the health of a parent company of Banco Espirito Santo.
Investors sought the safety of US and German government bonds. German 10-year yields fell from 1.21% to 1.17% - a 14-month low.
Peripheral euro zone bond prices fell (i.e. yields rose) and demand was curbed at Greece's debt sale (only its second debt sale since its 2012 default).
Australian 3-year government bond future yields extended yesterday's post-jobs data breakdown, from 2.62% to 2.56% - a one-year low. The 10-year yield fell from 3.48% to 3.42% - also a one-year low.
The Japanese yen was the outperformer overnight, benefitting from the flight to quality.
The yen hit a five-month high against the euro and an almost two-month high against the USD overnight.
EUR/USD fell from 1.3650 to 1.3590. AUD/USD initially extended its slide to 0.9361 but has partly recovered to 0.9390.
NZD/USD initially fell from 0.8830 to 0.8794, but bounced back to 0.8824 in NY. AUD/NZD found a base at a four-month low of near 1.0620 during the London morning and then lifted to 1.0650.
Gold surged to a 3½-month high on safe-haven buying after questions raised about the health of Portugal's top-listed bank sparked fresh worries about the euro zone region.
The price of oil (West Texas Intermediate) also rose overnight. It was the first rise in ten days. But, the widely-watched basket of commodity prices, the CRB index, fell overnight.
The unemployment rate edged up from a revised 5.9% in May to 6.0% in June, equalling the unemployment rate recorded in early 2014, a decade high.
Employment grew by a reasonably firm amount of 15.9k in June, close to our expectations for a 15.0k rise. However, the participation rate also increased in June, up 0.1 percentage points to 64.7%.
The rise in the participation rate helped to push up the unemployment rate. The labour market remains in better shape than it was in 2013.
In other data, the consumer expected inflation rate fell by 0.2 percentage points to 3.8% in July. Expectations remain below the long-run average.
The data was published by the Melbourne Institute and Westpac.
Chinese export growth in the year to June rose by 7.2%, below market expectations for a 10.4% increase. Chinese imports were also lower than expected at 5.5% in the year to June.
Despite weaker-than-expected trade data, other indicators are suggesting a pickup in momentum in Q2. For June, the trade surplus fell to US$31.56bn.
Portugal's stock market regulator halted trading in Banco Espirito Santo (BES) after the shares fell 19%.
The sell-off followed a decision by Espirito Santo Financial Group, which owns 25% of the Portuguese bank, to suspend trading in its shares and bonds due to "material difficulties" at its own largest shareholder, Espirito Santo International (ESI).
ESI is controlled by one of Portugal's most important business dynasties, the Espirito Santos.
Portgual's market regulator said it would ban short-selling in BES stock today. ESFG, a conglomerate that also owns an insurance company and a Swiss bank, said it was halting trading while it assessed the impact of its exposure to ESI.
Market volatility from these BES issues prompted Spain's Banco Popular to call off a €750-million bond issue, and construction firm ACS also withdrew a planned issue. Greece managed to place just half of a planned €3 billion bond placement.
Disappointing economic data out of Italy added to the worries about the euro zone region. Italy recorded its steepest drop in industrial production in two years.
Japanese machine orders fell significantly in May to be down 19.5%, against market expectations for a small increase.
The sharp decline suggests that Japanese firms remain wary of investment in the wake of the April sales-tax increase.
The Business NZ manufacturing PMI recorded a small increase, up to 53.3 in June. A level above 50 indicates that New Zealand manufacturing activity is expanding.
The Bank of England's Monetary Policy Committee (MPC) kept its benchmark interest rate at a record low of 0.5%, its level since the worst of the financial crisis more than five years ago, and made no statement.
The pace of economic recovery in the UK suggests that rates won't stay low forever. The Bank of England (BoE) could start raising rates as early as December. In August, the BoE will publish its quarterly inflation report and an updated set of forecasts.
This report and forecasts are likely to provide more guidance on the likely timing of tightening.
Data showed Britain's goods trade deficit with the rest of the world widened unexpectedly, as a 0.6% lift in exports was swamped by a 1.7% rise in imports.
The trade deficit widened from £2.05bn in April to £2.42bn in May.
Separately, more signs emerged last month that the upswing in the UK housing market is starting to moderate, although mortgage lending continues to rise.
The Royal Institution of Chartered Surveyors' monthly house price balance eased to 53 in June, from a downwardly revised 56 in May.
Tighter mortgage lending standards introduced in April were slowing the volume of transactions.
Initial jobless claims fell by 11k to 304k in the week ended July 5, the fewest in more than a month.
The four-week moving average for new claims, considered a better measure of underlying labour market conditions, fell by 3.5k to 311.5k last week.
This result is the second lowest since August 2007.
This result and last week's data that showed a drop in the unemployment rate to a near six-year low suggests that the job market continues to strength.
In other data, wholesale inventories rose by 0.5% in May, after a 1.0% gain in April. The rise in stocks adds to the view that the economy is bouncing back from a weak first quarter.