Weak Spanish bond auction

Australia unexpectedly posted the 2nd trade deficit in February amounting to A480mn, though down from a revised A971mn in January. Analysts had expected a surplus of A$1.1bn. Weather negatively impacted the trade deficit, but it is clear that exports are declining. The A$ declined on the news – currently US$1.0235;

The China Securities Regulatory Commission increased quotas for foreign qualified institutional investors to US480bn from US$30bn previously. To date the CSRC has granted quota’s of US$24.6bn. With increase in quota’s is an attempt to stimulate Chinese markets which are down approx 24% over the last year, and, in addition, to attract foreign capital;

The Chinese Premier Mr Wen stated that the country’s banks are a monopoly and should be split up. Chinese banks are, in effect, guaranteed a spread between deposit and lending rates. Great that Mr Wen talks about the issue, but the necessary action….;

Capital flight continues within Russia. US$35.1bn exited the country in the 1st Q, nearly double the amount a year ago;

A weak Spanish bond auction – only E2.6bn of bonds were sold, far less than the max of E3.5bn and at higher yields. The 10 year yield has risen to 5.67%. Spain has raised some 46.8% (E40.2bn) of this years requirements of E86bn. Spanish banks have been buying Government bonds – an act of lunacy;

EZ services PMI rose to 49.2 in March from 48.8 in February, slightly higher than the 48.7 expected;

The EZ composite PMI fell to 49.1 in March from 49.3 in February

EZ February retail sales came in at -0.1% or -2.1% YoY, lower than flat and -1.9% expected;

German factory orders rose by +0.3% MoM, much weaker than the forecast of +1.2%. However, January’s data was revised higher to -1.8%, from the initial estimate of a contraction of -2.7%. The German Economy Minister reports that orders from outside the EZ are picking up. The German composite PMI declined to 51.6 in March, from 53.2 in February.;

Mario Draghi, the ECB President dismissed calls by the Bundsbank for an exit strategy on liquidity programmes. He stated that such measures would be premature. He expressed concern about above inflation settlements (Germany), and stated that inflation in the EZ would remain above the 2.0% threshold in 2012, with “upside risks prevailing”. He forecast a “moderate recovery” for the current year, but he admitted that the outlook remained “subject to downside risks”. Draghi stressed than EZ banks must repair their balance sheets, which they are certainly not doing. As expected interest rates were kept on hold;

UK services PMI rose to 55.3 in March, from 53.8 in February and higher than the forecast of 53.4. New business picked up for the 3rd month running. Input prices were flat, in contrast to manufacturing PMI, which revealed that prices surged in March. The data reconfirms that the UK will not face a technical recession;

US March ISM non manufacturing came in at 56.0, less than the 56.8 expected and lower than February’s 57.3. The employment component was 56.7 versus 55.7 in February, though new orders declined to 58.8, from 61.2. Interestingly prices paid declined sharply to 63.9 from 68.4;

FED minutes released last night dampened expectations of further QE. He and another FED colleague Williams expressed concern about inflation. The US$ strengthened on the news as markets declined;

The FED’s Lacker stated that US economic growth would likely rise to 3.0% next year and that the FED should raise interest rates in 2013, rather than the current statement that rates would rise in late 2014;

The ADP report stated that US companies created 209k jobs in March (206k forecast), somewhat less than the revised 230k gain in February;

Mitt Romney won 3 races in Wisconsin, Maryland and Washington DC. The results confirm his material lead over his opponents;

Finally James Murdoch quit as Chairman of B Sky B. Not a surprise.

Apologies, short note today – have been tied up.


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