The monthly employment report issued by payroll services company ADP suggests 170,000 new jobs were created in the U.S. for the month of January. This is somewhat lower than the 182,000 average taken from a survey of 40 economists.
Source: Reuters
February 1, 2012
January 16, 2012
Eurozone Braces for Fallout from Credit Downgrades
European leaders are scheduled to meet on January 18th to prepare for yet another summit on January 30th to discuss the debt crisis. No doubt the latest round of sovereign credit rating downgrades and the potential impact of this latest development will be part of the agenda. On Friday, Stadard & Poor’s removed France’s triple-A rating and also cut ratings for several other countries including Spain and Italy.
Source: Bloomberg
London Hopes to Attract More Yuan-Based Forex Trades
British Chancellor George Osborne told an audience during his trip to Asia that the UK Treasury wants to work with Hong Kong to serve as “a gateway for Asian banking and investment in Europe”.
London is already the world’s largest center for foreign exchange and as China relaxes its strict controls on its currency, the Chancellor believes London is the natural choice for a hub for trading the renminbi. An intergovernmental agreement that London and Hong Kong would work together on yuan trading was reached last summer.
Source: BBC News
January 12, 2012
US Jobless Claims Rise More than Expected
New claims for unemployment benefits rose more than expected during the first week of January climbing by 24,000 to 399,000 for the week. Projections called for 375,000 new applications.
While the surge makes it clear that the U.S. labor market remains volatile, January is typically slower and leads to an increase in layoffs as temporary workers hired for the busy holiday season are no longer needed.
“There is usually a surge in seasonal layoffs at this time, and that is what’s happening here,” said Jonathan Basile, a senior economist at Credit Suisse in New York. “Claims have shown an improving trend. It’s a vote of confidence for continued improvement in the labor market.”
Source: Bloomberg
January 4, 2012
BUNDs and PMI to hurt EUR?
What are we waiting for? Despite yesterday being the beginning of the New Year for the rest of the world, it seems that the markets are underwhelmed by the rise in the US ISM. Thus far, it has failed to sustain a broad global equity rally or a significant FX move. Yesterday’s FOMC minutes did not seem to have a major affect on the markets either way. The key new news was that the Fed will now publish Fed funds forecasts on a quarterly basis when it provides other economic projections (next round due after the January 24 meeting). Officials would provide forecasts for the first hike, although with current guidance still suggesting rates will remain near zero until the middle of 2013 that is not exactly earth shattering.
Technical analysts are telling us that the EUR is about to straddle their next pivotal point. A daily close above the 21 DMA at 1.3080 suggests a return to 1.32-1.3240 before the currency becomes a sell again. Now that this markets seems significantly long dollars over the holiday period, the potential for this ‘little blip’ is possible, again squeezing out the weak short EUR positions. The dollar is clearly a risk-averse currency, even falling against the Yen, in the general risk recovery seen so far in 2012. All this is occurring against a backdrop of solid US data and the market perception that the US is likely to outperform Europe this year. It seems all eyes are on this Friday’s NFP release (+153k and +8.7%-early estimates). Before the release any continuation of risk-positive sentiment should remain dollar negative.
Euro data this am shows that the Private sector activity in the region shrank again last month, another indication that the area is heading back into recession. Despite the composite PMI for manufacturing and services rising to 48.3 in December from 47 in November, the sub-50 print still implies that the 17-Euro member currency contracted lat month for a fourth consecutive time, including all the fourth-quarter. The slight uplift has done little for the currency or euro negative thinking this session. Analysts note that the last quarter fall in output was the sharpest in two-years. Do not bet against a first quarter decline, two consecutive quarters would confirm a European recession.
Big picture, all of this is only going to complicate efforts for the Euro-zone leaders. The “perception” of trying to put finances in order and regain investor confidence, a condition for ending the debt crisis, could yet threaten Italy and Spain (capital markets next target in the ‘cross-hairs’). Both of these countries continue to report big drops in output. Even Germany’s return to growth in the final quarter will do little to dispel any of the 2011 accumulated negativity by investors for the region. It seems that the market does not like a two-speed Euro-zone (stronger Germany and France versus almost the rest), the weighting is too heavy. Perhaps until Friday, the market will continue to try to cap the EUR despite the long dollar weighting. With a German January 2022 Bund bid-to-cover ratio of 1.3 for EUR+5.14b makes that a tad easier!
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March 25, 2011
Week in Review-March 25th
The theme of the week was the ‘Nothing Matters rally’ took a firm grip and promoted riskier trading activity. Global equities saw black and the EUR continued to outperform any bad news, downgrades, periphery Prime Ministers resigning, delaying of EFSF objectives or the irate Irish. The Euro-summit came up short in delivering a ‘grand bargain’. The lack of a firm plan for increasing the lendable size of the EFSF and absence of commitment from Portugal for new measures to secure EFSF funding leave the EUR vulnerable in the near term after key resistance remained intact this past week.
EUROPE
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Trichet had ‘nothing to add’ testifying on monetary policy before the European Parliament earlier this week. Market interprets the ‘strong vigilance’ language as an indication that a rise in the ECB’s main policy rate is likely, unless something alters the official view between now and April 7.
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BoE Minutes revealed the MPC again voted 6-3 to leave rates unchanged. Posen continues to prefer increasing QE while Dale and Weale thought a 25bp hike was appropriate and Sentance preferred a 50bp hike. Members see increased uncertainty on the inflation outlook given the oil price developments. A May hike is looking most likely
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ECB’s Stark said that events in Japan and elsewhere had increased uncertainty but they had not changed the inflation picture, the growth picture and the threats to price stability. This is strong proof that Trichet and Co. will not be changing their appetite for a rate hike anytime soon.
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Portuguese Prime Minister Socrates, resigned after failing to push through additional austerity cuts he promised the rest of the Europe two-weeks ago. Elections are scheduled for May.
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Moody’s cuts 30 Spanish Banks ratings.
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Euro-zone flash PMI’s showed moderation in manufacturing but improvement in services (manufacturing- 57.7 from 59.0 in February).
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UK retail sales came in surprisingly weak with a 1% drop in February. The trend remains disappointing with some negative impact from the January VAT hike.
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S&P downgrades Portugal to BBB, following Fitch downgrade. Portuguese yield to Bund spreads wider, reinforcing market expectations that access to EFSF funding will be inevitable.
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German Ifo business climate indicator was lower in March (111.1), following nine months of consecutive improvements and an upward revision to February and keep the ECB’s plan to normalize interest rates credible.
Americas
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US sales of previously owned homes dropped more than forecasted (-9.6%, m/m, to +4.88m annualized units last month). Median buying price managed to decline to its lowest level in nine-years (-1.1% to $156k). Months’ supply jumped to +8.6-months of listed product, up from +7.6 in the previous month.
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US treasury announced that it was selling its $142b MBS (beginning ‘their’ unwinding of QE1). Some will view this as a form of tightening and a supposedly positive move for the dollar. However, this is ‘NOT’ the big Fed program. The Treasury portfolio is about a tenth the size of the Fed’s. The Fed still has some ways to go before announcing its own exit strategy.
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US house prices fell -0.3% in January according to the FHFA. The Richmond Fed manufacturing activity index fell to 20 from 25 which still indicates very strong activity given the average is only 0.4.
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Dallas Fed Fisher said the US recovery was gathering momentum and needs no further support (no QE3), and Cleveland’s Pianalto believes the recovery was modest (it’s actually strong – ISM at highest in 27-years) and that rising inflation pressures were temporary.
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Canadian retail sales declined -0.3% in January from the previous month. The market had been expecting an increase of +1%. Ex-autos and the print came in flat. In a separate report, the country’s leading-indicators index rose in February the fastest in nine months (+0.8%), led by gains in stock prices and ‘a turnaround in manufacturing’.
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Canada’s government faces the prospect of falling this week after opposition parties declined to back the government’s budget earlier in the week. Thus far, markets view elections as a non-issue for the currency. The most likely outcome of an election will be a status quo return of another Conservative minority government.
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US durable goods orders unexpectedly plummeted last month (-0.9% vs. market expectations of +1.5%). For a sector that has been driving the US economy to date, it is worrisome. A bright spot was inventories climbing +0.9% and unfilled orders, a sign of future demand increasing to +0.4%.
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US weekly claims continue to hold below that psychological +400k watermark (+382k vs. +387k). The headline print inched a tad lower, down-5k, to levels last seen in the pre-Lehman crash.
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Bernanke will begin holding four press briefings a year. Betting that by holding press conferences he will provide clarity about monetary policy and disrupt financial markets.
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US economy grew at a +3.1% pace in the fourth quarter, revised from +2.8%, led by a jump in consumer spending.
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Dallas Fed Fisher states that liquidity is in excess and maintains his hawkish tone, while Atlanta’s Lockhart still sees the current policy stance as appropriate, thinking the recent spike is short term inflation measure will not persist.
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March Michigan sentiment fell to 67.5, lowest level in a year, from a preliminary 68.2.
ASIA
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Japanese trade surplus widened to JPY556bn in February from JPY289bn in January, led by a +4.4% m/m rebound in exports. Markets would prefer to focus on the March trade data and expect exports to fall due to the disruption from the earthquake.
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Japan’s MoF released the latest data on international transactions in securities. The week following the earthquake, Japanese investors were net buyers of foreign bonds and notes. There was little evidence of significant transfer payment inflows or repatriation flows
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Central bank intervention in Asia appears to be holding KRW, INR, TWD and PHP back for now.
WEEK AHEAD
- The US kick starts the week with Pending home sales, supported by Consumer Confidence numbers and the Swiss Economic barometer.
- Down under, we get Building approvals and Retail Sales out of Australia followed by the Kiwi business confidence index.
- In the UK we see Current account data, manufacturing PMI and the Nationwide and Halifax HPI releases.
- Canada is quite, only reporting GDP mid-week
- On the labor front, the US gives us ADP non-farm, weekly claims and finishes the week with the highly anticipated Non-Farm Payroll data.
- Japan reports the Tankan Manufacturing index, while China releases its Manufacturing PMI
March 11, 2011
Fed NY Bank Pres “Encouraged” by Latest Growth
William Dudley, Federal Reserve Bank of New York President, described the recent growth in manufacturing jobs in the US as “particularly encouraging” in a speech delivered thin morning in Flushing, New York.
“This makes me more confident that job growth in January was temporarily depressed by unusually bad winter weather.” Other labor market indicators, including claims for unemployment insurance benefits, “have also shown improvement recently,” Dudley said.
Source: Bloomberg
March 4, 2011
Week in Review-March 4th
The EUR continues to outperform the dollar as investors interpret the ECB’s view to oil price shocks as inflationary events requiring a tighter monetary policy, in contrast to the Fed and the BOE, who are focusing on the deflationary impact. Trichet has followed in the hawkish footsteps of his coworkers and plied the EUR with enough ammo to dominate the non-inflationary Bernanke effect. The ECB will take the fight to inflation, maybe as early as next month. With the Libyan situation showing little signs of improvement and with the sovereigns continuing to weigh on the dollar, safe heaven trading strategies are the only option in this current environment. Below, we have some of the highlights of the week.
EUROPE
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Fine Gael wins Irish election and is in coalition talks with Labour. Victory will give them a clear mandate to try to renegotiate its EU/IMF bailout package.
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Euro area January CPI was revised down to + 2.3%, y/y from flash estimate. Core-CPI was also a tenth below consensus. Market continues to see elevated risks of a hawkish shift from the ECB.
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Euro manufacturing PMI’s continued to surprise to the upside, with particular strength in Ireland and Italy, driven by the forward looking components. Greece remained the weak spot amongst the periphery. Euro area was left unchanged at 59.
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Swiss PMI and 4th Q GDP showed surprised strength. GDP grew +0.9%, q/q, while the PMI bounced to 63.5 (highest level in six-months). Strong external demand from Germany and Asia is pulling the economy along despite CHF overvaluation. No hawkish rhetoric is expected at this months SNB meeting.
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UK PMI was flat last month, 61.5. New orders moderated, but employment hit a fresh high of 61.7 from 59. The 2011 releases show a solid recovery in the UK manufacturing sector in 1st Q and supports the hawkish camp at the MPC. King continues to send distinctly dovish signals that ‘raising rates to make a gesture is self defeating’. Market is pricing a hike in May.
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UK services PMI fell to 52.6 from 54.5, m/m. Analysts view the softness as more of a technical reversion to trend after the weather-induced volatility in December and January.
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Euro-zone registered strong increases in services (56.8) and composite PMI’s (58.2) for February, but below the preliminary estimates. Strong services gains were driven by France and Italy. The peripheries saw substantial gains in Ireland and Spain. Services PMI’s coupled with the firm manufacturing PMI’s point to robust growth in the Euro region.
Americas
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US consumers are hoarding their stimulus. Consumer spending disappointed with a +0.2% gain. Offsetting this disappointment is income jumping +1%, more than double the expected pace.
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Strong proof for the US housing markets weakness was pending home sales falling for a second consecutive month in January (-2.8% to 88.9). Even the revisions went deeper, with December falling into negative territory (-3.2%) from its original positive print (+2%).
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February’s Chicago PMI print of 71.2 was the highest reading in 23-years, led by a surge in production to 78.2 from 73.7. This release is hot on the heels from the January ISM manufacturing index, and the Empire and Philly Fed surveys for February and providing more proof that manufacturing is picking up in the 1st Q, in part on a need to build inventories.
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Surprisingly strong Canadian 4th Q GDP of +3.3% vs. +3% expected and an upward revision to the 3rd Q print to +1.8% from +1% pushed the loonie to new three years high outright.
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US January ISM numbers expanded at its fastest pace in seven-years (61.4 vs. 60.8), as factories added workers and pumped up production, continuing the momentum for their expansion.
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US construction spending fell for a second-consecutive month in January (-0.7% vs. -1.6%). Builders have had trouble getting finance and even with the tighter credit conditions, demand for credit in some places remains weak.
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Bernanke will not be tightening monetary policy until he is more confident that US recovery can stand on its own. ‘Once we see the economy is in a self sustaining recovery and employment is beginning to improve and labor markets are improving and inflation is stable and approaching +2% or so….at that point we will begin withdrawing’. That being said, he is aware of the risk that the Fed will act too slowly and allow inflation to get controlled.
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The BoC held rates steady at +1%. Governor Carney expressed his concern about the strength of the loonie ‘the export sector continues to face considerable challenges from the effects of the persistent strength in the Canadian dollar and Canada’s poor relative productivity performance’. The new reality is a Canadian dollar at or close to parity as the economy adjusts to this paradigm.
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ADP Private Payrolls rose +217k last month, up from a revised +189k.
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Fed’s Beige Book suggests that overall ‘economic activity continued to expand at a modest to moderate pace in January and early February’ and that price pressures are increasing. All the districts recorded ‘solid’ growth in manufacturing and retail sales increased in all districts.
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US weekly claims fell by -20k to +368k, the lowest level in nearly two-years. The less volatile four-week-moving-average now stands at +388k.
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US ISM non-manufacturing was not much of a surprise, coming in at 59.7 last month, just above market expectations. However, it’s the strongest reading since August 2005. The headline print is proof that the service growth appears to be finally entering a ‘self-sustaining’ pattern.
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US job market rebounded last month, unemployment rate fell to 8.9%, lowest level in two-years. NFP rose +192k as private sector added +222k new jobs. The January number was revised to show an increase of +63k from a previous estimate of +36k. The Fed still expects unemployment to range from +7.5% to +8% at the end of 2012 as the economy only slowly regains the 8.75m jobs lost.
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US January factory orders reported a strong +3.1% increase. The mixed data (strong non-durables and weak durables) remains consistent with strength in the above manufacturing surveys.
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Canadian Ivey PMY continues to express extreme volatility rising to 69.3 last month from 41.4 in January. The correlation between PMI and total remains weak. Market perhaps should be looking at a six-month average.
ASIA
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NZD Confidence rose to 34.5 last month – a seven-month high – from 29.5 in January.
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Japan industrial output rose a weaker-than-expected +2.4%, m/m (+4% expected). Retail sales (seasonally adjusted) rose +4.1%, m/m, vs. +2.7%. Manufacturing PMI rose for the fourth-consecutive month to 52.9 in February, with the new orders and export orders again rising significantly. JPY remains very much a play on the US rate outlook and risk aversion trading strategies.
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Chinese PMI data provided little excitement and little new information. Headline was in line with expectations at 52.2 in January. Analysts are calling for growth moderation and do not expect a change in monetary policy from Beijing any time soon.
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Dovish comments from New Zealand’s PM Key this week. He said that a RBNZ rate cut priced in by markets for March was in line with his expectations given the economic impact of the recent Christchurch earthquake. Market is pricing a 25bp RBNZ cut on the 10th March.
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Australian 4th Q GDP was weaker than expected +2.7%, y/y vs. +2.8%. The data still point to higher policy rates and AUD appreciation medium term. Analysts continue to anticipate a strong positive uplift this quarter despite severe flooding and cyclones. The RBA noted that mildly restrictive rates are appropriate. Do not expect them to get too far ahead of the RBNZ.
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Australia reported a -15.9%, m/m, fall in building approvals in January. Market continues to look beyond January data severely impacted by the floods.
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China’s non-manufacturing PMI fell to 44.1 last month from 56.4 and inline with seasonal patterns. The PBoC hiking 1-year lending, deposit rates +25bp and reserve requirement +50bp in February has also weighed on consumer sentiment.
WEEK AHEAD
- Down-under will provide us with the job situation in Australia and a Kiwi rate announcement. RBNZ is expected to ease
- Canada has housing and building permits, ending the week with trade and employment
- Inflation indicators come from the Swiss and Chinese.
- BoE will keep us on our toes mid-week with their MPC rate statement
- US give us Trade, claims, and will end the week with retail sales data
March 1, 2011
Dove Bernanke to push EUR higher
Investors are embracing an environment conducive to more risk taking and the reason for the ‘safe-haven’ currencies, JPY and CHF, to be leading the G10 selloff. This morning’s data shows European manufacturing activity picking up. With the growth divergence between the core and the peripheries narrowing and price pressures mounting, it’s a good argument for Trichet to contemplate raising interest rates and the reason the EUR is here. Chinese PMI data last night provided little excitement and little new information. The headline was in line with expectations at 52.2. Beijing should be in no hurry to change monetary policy any time soon. Market anticipates Bernanke to remain dovish today, there is no need for deviation from the FOMC’s core message in his semiannual testimony to the Senate this morning. A consistent message will keep yields heavy and the dollar on the defensive. The problem, improved economic data and a market bracing itself for a strong employment report should be capable of pushing yields higher by end of week.
The US$ is mixed in the O/N trading session. Currently, it is lower against 10 of the 16 most actively traded currencies in a ‘subdued’ O/N session.
This is a busy week on the data front. Yesterday the market was treated to signs that US consumers are hoarding their stimulus. Consumer spending disappointed with a +0.2% gain, half of the consensus forecast. Offsetting the disappointing print was income jumping +1%, more than double the expected pace. Most of the spending gain was on goods (+0.7%), led by nondurables (+0.9%). Digging deeper, the pace of growth in spending moderated across most of the subcategories. For instance, service spending, which accounts for two-thirds of household spending, came in flat. The ‘nominal’ rise in spending was due to higher prices, with the inflation adjusted volume of consumer spending down -0.1%, month over month. Analysts now expect this to be a drag on first quarter GDP where household spending represents +66% of headline growth. Turing our attention to income (+1%), gains were widespread. Private salaries were up +0.4%, while the support from government transfers was down -0.5%. Notably, the saving rate climbed to +5.8% from 5.4%, strong proof of US consumer hoarding. In real terms, real personal income ex-transfers were up +1.1% (most in five-years), while real personal disposable income was up a more modest +0.4%. The inflation component remains benign, with the core-deflator for personal spending (ex-food and energy) coming in a modest +0.1%, month over month. It seems that the ‘commodity shock is crowding out core-pricing power’ and something that will not be worrying the Fed monetary stance anytime soon.
Not a surprise and further proof for the US housing markets weakness was pending home sales falling for a second consecutive month in January (-2.8% to 88.9). Even the revisions went deeper, with December falling into negative territory (-3.2%) from its original positive print (+2%). Year-over-year, sales are down -1.5% in January. Many of the variables that influence the housing print remain weak, high rates of joblessness (+9%) and elevated foreclosures will continue to depress home values. Last week’s January sales of new homes happened to fall -12.6%, month over month.
Finally, February’s Chicago PMI print of 71.2 was the highest reading in 23-years, led by a surge in production to 78.2 from 73.7. This release is hot on the heels from the January ISM manufacturing index, and the Empire and Philly Fed surveys for February and providing more proof that manufacturing is picking up in the 1st Q, in part on a need to build inventories. Digging deeper, new orders and prices paid saw little change, but remain strong. Supplier deliveries with a rise to 64.1 and order backlogs at 61.8 contributed to the increase, but employment softened to 59.8.
The USD$ is lower against the EUR +0.22%, GBP +0.31% and higher against CHF -0.24% and JPY -0.42%. The commodity currencies are mixed this morning, CAD +0.01% and AUD +0.00%. Surprisingly strong Canadian 4th Q GDP of +3.3% vs. +3% expected and an upward revision to the 3rd Q print to +1.8% from +1% pushed the loonie to new three years high outright yesterday. Some of the currencies appreciation was offset by the income and spending data down south. Exports rose +4%, the biggest percentage gain in six-years. Crude oil shipments rose +30% to a record. Thus far, the value of the CAD seems ‘not’ to have impeded Canadian growth. Other key positive drivers of growth included consumption (+1.2%) and imports remaining flat. The value of the loonie should be expected to further contain inflation and further question the sustainability of export gains. What is the BOC to do? With the Fed on hold until early next year or later, Governor Carney will be weary about raising the overnight BoC-Fed spread aggressively or at all anytime soon. Carney should be believing that the currency value and the implementation of tighter mortgage rules will act accordingly. This morning the BOC is expected to hold rates steady. Now, will Carney talk the currency down a tad? (0.9704)
In the O/N session the AUD received an initial leg up from slightly better than expect January retail sales growth (+0.4%), however, the currency has been unable to retain its momentum after the RBA policy meeting just yet. As widely expected the RBA left policy rates on hold (+4.75%). The communiqué was largely unchanged from previous months. It seems that they are very comfortable with rates on hold at present. The only hawkish element in the statement was around wages. Market pricing of rate hikes over the next 12-months edged higher to +28bp from +25bp. The market seemed disappointed because the statement was not as bullish as has been expected, spurring some profit taking. The unwinding of JPY risk aversion trading strategies will continue to support the AUD on theses pullbacks (1.0190).
Crude is higher in the O/N session ($97.22 +25c). Crude prices remain elevated on Middle-East geopolitical concerns. Oil climbed to a 30-month high last week as violent uprising reduced supplies from Africa’s third-biggest producer. It’s been estimated that as much as +1m barrels of Libya’s daily oil production may have been shut. The IEA believes that may be a ‘bloated figure’ which has caused oil prices to back away from their recent highs. ‘While there’s a risk of contagion, of this spreading to Iran or Saudi Arabia, the market is going to see prices elevated from these levels’. The IEA’s chief economist said that ‘higher oil prices pose a danger for a global economic recovery’. Last week’s EIA report again has provided some support for the US crude market on pull backs. The report showed a smaller-than-expected increase in supplies. Crude inventories rose by +800k barrels vs. an expected increase of +1.4m. Even worse was the gas inventory headline declining -2.8m, analysts had been expecting an increase of +950k barrels. Stocks of distillates (heating oil and diesel) fell -1.3m barrels, which was very much inline with expectations. Concerns about the Middle-East and production problems in the North Sea are boosting Brent relative to WTI and pushing the spread to a record premium. With supply the number one concern, the commodity will remain bid because of the contagion concerns.
Like most commodities, gold is heading for its longest rally in six-months, as mounting tensions in North Africa and the Middle East boost demand for a ‘safe haven’. Last week the commodity was up +1%. The yellow metal continues to be supported by geopolitical factors and inflation threats. Prices have risen nearly +7% this month, as protests in favor of democratic reform in North Africa turned bloody. Investors have grown increasingly uneasy that the crisis could spread. Even hawkish global rhetoric has managed to give the yellow metal a leg up in February. Consumer prices are also boosting the demand for the precious metal as a hedge against global inflation. Last week, the market witnessed Chinese’s inflation accelerating the most in six years, and UK consumer prices the most in two years. Even US data is showing that their inflation numbers are edging higher. The commodity is being used as a store of value. The asset class is expected to remain better bid on speculation that currency volatility will boost demand for a safe heaven investment once the Euro contagion fears raise its ugly head again over the coming weeks during the Euro-periphery refunding season ($1,414 +$4.50c).
The Nikkei closed at 10,754 up+130. The DAX index in Europe was at 7,327 up+55; the FTSE (UK) currently is 6,016 up+25. The early call for the open of key US indices is higher. The US 10-year backed up 6bp yesterday (3.46%) and is little changed in the O/N session. Geopolitical pressures continue to support treasuries despite the uptick in global inflation numbers. Treasuries were little changed yesterday after a report showed consumer spending in the US rose less than forecasted last month. Last week, the US benchmark 10’s gained the most in nine-months as the Middle-East and North African crisis has driven investors to the safety of US product and raised concern that surging commodity prices may curtail some of the global economic recovery we are currently witnessing. Also aiding prices is the belief that the Fed will buy between $18.5b and $26.5b in US debt this week. Month end requirements have also had portfolio managers requiring some duration. Event risk remains the order of the day despite more encouraging global economic data.
February 15, 2011
Rent Increases Push China’s Inflation Higher
A jump in rent prices contributed to an increase in China’s inflation rate during the month of January. Excluding food, prices rose the most in six years to 4.9 percent from one year ago. The news immediately led to further speculation that China will be forced to increase interest rates to ease spending.
“Inflationary pressures haven’t abated and China has already entered into an era of structural inflation,” said Liu Li-gang, an Australia & New Zealand Banking Group economist in Hong Kong. He sees “more monetary policy tightening ahead.”
Source: Bloomberg