Solid Q2 GDP reports from Europe are being seen as old news and are being overshadowed today by weakness in Southern European debt. Germany reported an annualized Q2 GDP gain of 8.8%, well above expectations of a gain of 5.2%. For the Euro Zone as a whole, Q2 GDP rose 4% annualized vs the forecast of 2.8%. However, the 5 yr and 15 yr bond auctions in Italy were soft as the bid to cover in both were only about 1.25 vs 1.41 for last months 5 yr and 1.74 for the 13 yr. Yield spreads in Irish, Spanish and Greek debt to German bunds are all wider. The Irish 10 yr debt spread to bunds in particular is just 13 bps from its recent high. After a sharp decline yesterday, the Yuan is lower again vs the US$ to the lowest since late June in response to the weaker than expected China economic data a few days ago. But, it’s this hoped for soft landing and no more policy tightening that boosted the Shanghai index from yesterday’s low close for the week.
