Sunday, May 31, 2015
Switzerland's economy contracted the most since the financial crisis in Q1 as the strong franc took a toll on exports. Gross domestic product fell by 0.2% in the first three months of 2015 compared to revised growth of 0.5% in the prior period. The outlook for the economy suffered a blow in January when the Swiss National Bank removed its currency cap, causing the franc to rally 15% vs. the euro during the quarter
Thursday, May 21, 2015
European stocks are on the decline amid mixed reports on the region's factory activity. France's output contracted less than economists estimated in May, but German manufacturing missed projections, signaling the region's largest economy is losing momentum. Markit's composite flash PMI for the eurozone also fell below analyst expectations, dropping to 53.4 in May from 53.9 in April.
Wednesday, May 20, 2015
Taking advantage of the lower borrowing costs in the eurozone, McDonald's and United Technologies are now the latest big U.S. companies to issue debt in euros (called "reverse Yankee" bonds), selling €2B and €750M, respectively. The total raised by U.S. companies issuing euro-denominated debt so far this year is just over €34B (not including the latest two deals), more than double the previous record of €17B in 2007.
Thursday, May 14, 2015
Consumer inflation continued to remain benign with the April recording inflation of 4.9% YoY. This is lower than March's 5.3% inflation (revised upward from 5.2% reported earlier). Core inflation slightly inched up to 4%, after hitting a three year low of 3.9%. Urban inflation was down to 4.4%, while rural inflation came down to 5.4%
Consumer inflation for April down to 4.9% YoY, lower than March’s 5.3%.
Lower food inflation has led to lower headline numbers; Core inflation inches up to 4%.
Pressure on inflation emerging from possible drought, higher crude oil prices and depreciating Rupee.
High possibility of central bank leaving policy rates unchanged in June, due to upside risks to inflation.
Another risk to inflation is from the depreciation of the Rupee, which has been under pressure for the past one month, primarily due to sell-off of local equities by foreign portfolio investors. INR was trading at 61-63 to the dollar for a long time, but has hit 64/USD during the last week and continues at those levels now. With India importing ~80% of required crude oil, the weakness in INR will translate to higher fuel costs, multiplying the impact of already higher crude oil prices.
The vicious selloff in the European bond market has continued into another session, after German and U.S. bond yields surged to their highest levels in over five months. The startling rise in yields is making equities look more expensive in comparison to debt, keeping stock markets subdued. Yields on German 10-year paper are now up to 0.73%, having been as low as 0.59% on Wednesday, while U.S. 10-year notes have halted their slide.
The dollar languished at three-month lows today after poor U.S. retail sales proved a huge disappointment to those expecting some sort of U.S. rebound from a weather-weakened Q1. The key measure of sales was flat in April, adding to other disappointing data that could see the Fed postpone a rate hike and analysts downgrade their growth forecasts for the rest of the year. The dollar index last traded down 0.5% at 93.27. It has now shed nearly 7% from a 12-year peak of 100.39 set in March.
Tuesday, May 12, 2015
According to the latest report from the Energy Information Administration, oil production from seven major U.S. shale plays is expected to fall by 86K bbl/day in June. Oil output at the Eagle Ford shale play in South Texas is forecast to see the biggest decline, down 47K bbl/day, while production at the Bakken shale play, centered in North Dakota, is expected to drop by 31K bbl/day. Crude futures +1.9% to $60.39/bbl.
The global sell-off in bond markets has resumed, as yields surge on 10-year notes in Italy, Spain, Portugal and Germany. With the full picture still far from clear, strategists and analysts have been hard pressed to pinpoint a specific reason for the shift over the past two weeks. Markets will now focus on rates today and several U.S. Treasury auctions this week to see if Monday's high yields were just the starting point for a new trading range. 10-year Bund yields +9 bps to 0.68%; U.S. 10-year +12 bps to 2.27%.
Monday, May 11, 2015
China's budgetary purchases of crude oil from overseas hitting a new high of 7.4M barrels a day (equivalent to roughly one in every 13 barrels consumed globally) and topping U.S. imports of 7.2M bpd. While China's imports are not expected to consistently surpass those of the U.S. until the second half of this year, the move highlights how the U.S. shale revolution has cut the country’s reliance on oil from overseas - and how China's demand has grown even as its economy slows.
Asian shares rose today as investors cheered the fresh easing measures China announced over the weekend. China's central bank cut its benchmark lending rates by 25 bps to 5.1% on Sunday, its third reduction since November, as economic growth cools to levels not seen since the global financial crisis. The PBOC also reduced one-year benchmark deposit rates by 25 bps to 2.25%.
Tension is building ahead of a key meeting of eurozone finance ministers in Brussels today which will discuss Greek debt concerns, reforms and the likelihood of an imminent deal. Although Greece seems to have enough money to meet Tuesday's deadline for the repayment of €750M to the IMF, the country is perilously close to running out of cash and defaulting on its debt. The IMF is now working with national authorities in southeastern Europe on contingency plans for a Greek default. Euro -0.4% to $1.1157
Sunday, May 10, 2015
Eurozone retail PMI recorded its highest reading in ten months at 49.5 for April, up from 48.6 in March. Growth of retail sales in Germany helped to offset falls in Italy and France. Gross margins continued to fall at a faster rate in a signal conditions are still demanding for retailers, according to the report.
The International Monetary Fund warns the balance of risk in the Asia-Pacific region is tilted toward the downside due to rising debts and a strong U.S. dollar. Although Asia is still seen as a global growth leader, the agency sees a slowing trend. The region is forecast to have a growth rate of 5.6% in 2015 and 5.5% in 2016, according to the new IMF survey. Positive factors for Asia in the near future include moderating commodity prices, strong labor markets, and solid demand from the U.S. and Europe.
Wednesday, May 6, 2015
Sentiments in the Indian markets remained dull throughout that day. At the time of writing, the Sensex was trading lower by about 700 points or 2.5%. Weakness was seen in stocks across the board with engineering, realty and power stocks being the most affected. The midcap and small cap indices fell by about 3% each today as well.
the BSE-Realty index was amongst the top losers today on news of the Real Estate (Amendment) Bill and the Constitution (122nd Amendment) (GST) Bill 2014 getting stalled by the Congress-led opposition in the Rajya Sabha. The real estate bill is now proposed to be sent to the select committee of the Rajya Sabha. The opposition, led by the Congress, has been opposing the amendments made by the NDA government, claiming that it goes against the interest of the buyers and as such is pro-developers.
Crude prices hit fresh 2015 highs overnight, continuing a rally that has surprised many investors almost as much as the steep sell-off that bottomed in mid-March. After gains of 20% for Brent and 25% for WTI in April, oil bulls pushed prices higher again this week, despite indications that OPEC would keep production unchanged at its meeting next month. The EIA is scheduled to issue official stockpiles data at 10:30 a.m. EST. Crude futures +2.5% at 61.89/bbl.
Countering signs that the economy was slowing before Thursday's knife-edge general election. Markit's services PMI climbed to an eight-month high of 59.5 in April from 58.9 in March, beating forecasts for a decline to 58.5. The latest opinion polls seem to show the Conservatives with a slight lead over Labour, although neither are on track to command a majority in the parliament.
Interest payment that fell due on Wednesday, although concerns over its future continued to rattle European markets. Athens faces another €750M repayment obligation to the IMF on May 12 and many commentators are struggling to see where the money is going to come from. The cash-strapped country still remains in a deadlock with creditors over its next tranche of bailout funding.
A worldwide sell-off in government bonds deepened today, buoyed by rising German Bund yields that recently hit record highs and narrowed their gap with U.S. Treasuries. Benchmark 10-year Bunds now trade at 0.53%, having hit a record low of 0.05% last month, when many expected them to turn negative. The vicious bond market meltdown is also raising pressing questions for investors - is this a correction or merely a trend change?
The European Commission raised its euro-area growth forecast today as dwindling fears of deflation and monetary stimulus help the economy overcome pressure from the continuing crisis in Greece. While GDP in the 19-nation bloc is now forecast to increase 1.5% this year (up from a prediction of 1.3% in February), the European Commission slashed Greece's economic growth outlook to 0.5% in 2015, down from an earlier 2.5% estimate. Other GDP forecasts for 2015: Germany +1.9%; France +1.1%; Italy +0.6%.
Tuesday, May 5, 2015
U.S. companies have issued a record $39B of bonds in 2015 that mature in more than three decades, more than five times the amount sold in the same period last year, according to data compiled by Bloomberg. Oracle joined the fold this past Tuesday, selling $1.25B of securities due in 2055. Another notable is Microsoft , which sold its first 40-year bond in February. Treasurers are embracing what may be their last opportunity to lock in cheap long-term funding costs before the Fed raises rates, while investors are snapping up the longer-dated securities because they offer a higher yield over shorter-term debt.
Monday, May 4, 2015
Russian President Vladimir Putin ratified an accord Saturday to set up a $100B reserve fund for the so-called BRICS nations, aimed at reshaping the Western-dominated international financial system centered around the IMF and World Bank. China is poised to provide the largest share of $41B to the pool, while Russia, Brazil and India will provide $18B each. South Africa is set to chip in the remaining $5B.
Chinese shares bounced back from their earlier lows on Monday as weak China factory activity reinforced views that Beijing will roll out more stimulus measures to support its slowing economy. The HSBC final Purchasing Managers' Index fell to 48.9, its fastest drop in a year, down from the preliminary reading of 49.2 and weakening from the 49.6 print in March. Meanwhile, the IMF is close to declaring China's yuan as fairly valued for the first time in more than a decade, a milestone that follows years of IMF censure of Beijing's management of the currency.
With a surge in German yields and lessening fears of deflation in Europe, the euro rallied for a second session, climbing to a fresh two-month high against the dollar. Data this week suggesting the eurozone might be pulling out of deflation triggered a rise in Bund yields and shot the benchmark 10-year yield to 0.386%, up some 20 bps in two days. The euro has now clawed its way back from a 12-year low of $1.0457 in March, when the ECB launched its massive QE program. Euro +0.2% to $1.1244.