India funding requirements could be problematical

India’s trade deficit increased 56% in the fiscal year to March 2012
to a record US$184.9bn or 9.9% of GDP, as compared with US$118.7bn in
year to March 2011 or 7.1% of GDP. Imports rose by 32.1% to 488.6bn.
Oil imports were up 46.9% to US$155.6bn and gold and silver up 44.4%
to US$61.5bn. Exports rose by 21% to US$303.7bn. The current account
deficit rose to US$19.6bn in the 3 months to December 2011, which the
RBI rightly states is unsustainable. The forecast current account
deficit for the fiscal year ending March 2013 could rise to 4.0% of
GDP, reports the Trade Secretary, as opposed to 2.6% for the year to
March 2012. The Rupee looks as if it is going to decline
significantly, though interest rates are on hold, warns the RBI.
India’s financing requirement for the current fiscal year is expected
to amount to US$120bn – where’s that coming from?:

Portugal will require further assistance. An article written by the
Portuguese PM and published in the FT, effectively admits to that. A
decision as to a further bail out will be necessary sometime around
June/July this year or end August at the latest. This is because the
IMF has to deem that a country can be self financing ie can access
international capital markets in 12 months time. Portugal needs to
repay a E9.7bn bond due in September 2013. The current bail out
programme by the EZ/IMF requires Portugal to raise the funds through
medium/long term bond auctions. Given the IMF requirement, Portugal
will have to convince the IMF that it can raise the funds necessary to
repay the Sept 2013 maturing bond by this September – clearly
impossible as 10 year Portuguese debt is trading above 12%. A recent
IMF report suggested that Portugal will require more financing, if it
cannot access capital markets (read it will require an additional bail
out). The Germans have expressed support for Portugal and a 2nd bail
out will be provided. In addition, Portugal can be sorted out, as can
Ireland, though Spain…..The FT estimates that Portugal will require
additional funds of approx E76bn, which will reduce the amount left in
the EFSF/ESM. Whoops;

Given the worsening economic and fiscal problems in Italy and Spain,
further downgrades are very likely, – certainly a view expressed by
CITI;

Germany’s important IFO business climate index rose to 109.9 in April,
higher than the 109.5 forecast and March’s 109.8. The expectations
component was unchanged at 102.7 and the current situations came in at
117.5, from 117.4 previously. The German economy looks as if it
continues to expand;

German March PPI came in at +0.6% MoM. or +3.3% YoY, a little higher
than expectations of +0.5% and +3.1%;

The most recent French polls (Ipsos) suggest that Mr Hollande will
attract 29% of the votes in the 1st round, as compared with Mr Sarkozy
with 25.5%. In the 2nd round Hollande is expected to get 56% of the
votes. Looks particularly difficult for Sarkozy;

The UK’s March retail sales (including fuel) was up by +1.8% MoM, or
+3.3% YoY, well above the +0.4% MoM and +1.3% YoY expected. Ex fuel,
retail sales were up +1.5%, as opposed to a rise of just +0.4%
expected. Warmer weather helped;

US existing home sales in March unexpectedly declined for the 3rd time
in the last 4 months. Sales declined -2.6% to an annual rate of
4.48mn, from 4.6mn in February and a forecast of 4.61mn. At the peak
in 2005, sales amounted to 7.1mn homes annually, for comparison
purposes. YoY prices rose by +2.5% in March, though the rise reflected
sales of higher value homes;

The Index of leading indicators rose in March, for the 6th straight
month. The Conference Board’s gauge rose by +0.3% (forecast +0.2%),
suggesting that the US economy will continue to expand in the next 3/6
months. 7 out of the 10 indicators rose, in particular, interest
rates, building permits and stock prices. The coincident index rose by
+0.2%, whilst the lagging indicator index was up +0.3%;

US jobless claims fell by 2k to 386k in the week ended 14th April,
slightly better than the revised 388k the previous week, though higher
than the 370k forecast. The numbers could well have been impacted by
the Easter holidays;

The Philly Fed index declined to 8.5 in April, the lowest level since
January, from 12.5 in March and the forecast of 12. Recent data seems
to signal slower manufacturing – higher US$ the reason?. New orders
declined by -2.7, the lowest since last September, and 3.3 in March
and shipments also declined to 2.8, from 3.5 previously. However,
employment rose to a 11 month high of 17.9, much higher than the 6.8
in March.

Outlook

Asian markets (ex India, Korea and Taiwan) closed flat to slightly
higher. Rumours of a Chinese RRR cut continue. Looks likely.
European markets are higher at present.
Spot Brent is rising, currently US$118.73 and Gold is trading at
US$1645. Interestingly copper is marginally higher, given the rumoured
Chinese RRR cut.
The Euro is higher, reflecting the better German IFO numbers.
Currently US$1.3192. With a likely win in the 1st round of the French
Presidential elections, I cant see that holding.
US futures indicate a higher open – Dow looks as if it will open +0.4% higher.

I’ll leave you with this one. The FT reports that the SEC has decided
to file a civil action against Mr Egan and his firm Egan-Jones (a
credit ratings agency), for allegedly providing misleading
information. Hmmmm. A ratings agency and alleged misleading info !!!

All eyes on France next week.

Kiron Sarkar

20th April 2012

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