European bank shares lead decline in world stocks Financial Markets Corporate-credit risk soared for a second day as investors struggled with uncertainty following the U.K.’s unexpected decision to leave the European Union. The cost of insuring corporate debt against the default in Europe rose to the highest since February, according to Markit credit index data. Furthermore, the risk premium investors demand to hold high-yield corporate bonds in euros soared 32 basis points (bps) to 4.97 percent last week, the highest since April. The aftermath of the U.K.’s referendum vote resonated across the global financial markets, with the British pound tumbling further in historic sell-off and global equities dropping to their lowest level since March. Sterling fell 3.6 percent versus the dollar to $1.3209, after reaching a three-decade low of $1.3186 earlier that surpassed its weakest levels during the record selling on Friday. MSCI’s gauge of world stock markets fell 0.9 percent with European bank shares leading the decline. A gauge of European bank shares fell 7.5 percent in afternoon trading, taking the slide in the last two trading sessions to about 20 percent, equating to a loss of €168 billion in market capitalization. Advanced Markets The U.S. flash Markit seasonally adjusted services purchasing managers’ index (PMI) remained unchanged in June from the final PMI reading of 51.3 in May (a reading above 50 denotes expansion). At 51.8, the average services PMI for Q2, is slightly stronger than the reading of 51.4 in Q1, as relatively weak demand continued to weigh on activity growth, reflecting economic uncertainty and risk aversion among clients. The increase in incoming new work moderated, with jobs growth easing for the third month. Further, input cost inflation remained subdued, while the one-year ahead business confidence eased for the second month. Emerging and Developing Economies East Asia and Pacific The profits of Chinese industrial companies grew by 3.7 percent (y/y) in May, decelerating from 4.2 percent growth in April. Industrial profits in the first five months of the year eased were 6.4 percent higher compared with the same period in 2015, 0.1 percentage point lower than in the January to April period. Still, share prices on the Shanghai Composite index rose 1.5 percent. Europe and Central Asia The Bank of Russia announced that the minimum reserve requirement on credit institutions' liabilities in foreign currency will be raised by 0.75 percentage point to 7 percent from August 1, 2016. The move seeks to help absorb part of the additional liquidity stemming from the use of the sovereign wealth fund to finance the budget deficit. 1 Tourist arrivals to Bulgaria jumped 13.1 percent (y/y) to 808,300 in May. Gains were led by increased visitors from France (40 percent), Romania (32.5 percent), and the U.K. (12.7 percent). Latin America and the Caribbean Mexico’s trade gap narrowed to $527 million in May, compared with $1,113 million a year earlier. Exports grew by 0.3 percent (y/y) in May to $31.3 billion, while imports declined by 1.6 percent (y/y) over the same period to $31.9 billion. June 27, 2016 The Global Daily is an informal briefing on global economic and financial developments compiled by the World Bank’s Development Economics Prospects Group. Recent issues, together with analysis of a variety of macroeconomic topics, covered by the Group, may be found at: http://www.worldbank.org/prospects. The views expressed in the Global Daily do not necessarily reflect those of The World Bank Group, its Board of Executive Directors, or the governments they represent. Feedback and requests to be added to or dropped from the distribution list may be sent to: Derek Chen (dchen2@worldbank.org). 2