Japan growth disappoints

Sovereigns provided some of the few points of interest today as the summer lull continued.

Japan's second-quarter GDP growth came in at 0.6%, below expectations of 0.9% and down from the previous quarter. The Japanese government is planning to increase the sales tax before year-end, but today's disappointing figures may give it pause for thought.

CDS investors, though, were unmoved by the news, with Japan's spreads steady at 60bps. They have rallied nearly 30bps since late June, and are now close to the tight levels reached in mid-May, when the euphoria from prime minister's economic policies, dubbed "Abenomics", was at its peak.

China's CDS, on the other hand, are about 40bps wider than where they started the year, a reflection of concerns about lower growth and the turmoil in the interbank market in June. However, China's spreads did manage to tighten 5bps to 102bps today following reports that the government may implement targeted stimuli in various local areas.

The positive economic data from last week has also boosted sentiment, though worries about the sustainability of China's economic model remain.

In Europe, the market was moving sideways, and will probably do so until September. A report from the Bundesbank that stated the need for further debt relief for Greece - something the market already assumes will happen - highlighted that the eurozone debt crisis is far from resolved.

Greece's economy shrank by 4.6% on an annual basis in the second-quarter, a figure that was welcomed in some quarters, but is nonetheless a clear indicator of the dire condition of the Greek economy.

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