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Prospects Daily: Spanish bonds fall on debt concerns, continued rise in unemployment rate

Global Macroeconomics Team's picture

Important developments today:

1. Spanish bonds fall on debt concerns, continued rise in unemployment rate

2. US consumers buoy economy.

Spanish bonds fall on debt concerns, continued rise in unemployment rate. Spanish government bonds retreated for the first time in three days after the government said the country’s debt-to-gross domestic product ratio will rise by more than 10% this year to 79.8% from 68.5% in 2011. The rising debt levels add to a gloomy outlook of the country’s economy, which is struggling to reduce its budget deficit to meet a stringent European Union deficit goal in 2013.  Moreover, a report showed that Spain’s jobless claims continued to climb in March, rising for an eight consecutive month, making the government’s efforts to get its finances under control even more difficult at a time when it is trying to shore up investor confidence. Ten-year Spanish bond yields rose by 7 basis points (bps) to 5.42%, while corresponding Italian and Portugal bond yields declined as well.

US consumers buoy economy. Supported by an improving labor market situation, higher stock prices and low interest rates, US consumer sentiments continues to improve. According to Bloomberg’s Comfort index, US sentiment is near a four year high. This is also corroborated by other indices, including the Thomson Reuters/University of Michigan index, which rose for the seventh consecutive month in March. With consumer spending accounting for some 70% of US GDP, the strengthening of consumer confidence and associated robust consumer spending (as evidence in retail sales figures) has contributed to the resilience of the US economy with rising industrial production and service sector activity, notwithstanding slower external demand. Nonetheless, higher gas prices and weak income growth threaten to curtail the robust rise in consumer spending.

Among Emerging Market

In Europe and Central Asia, Turkey’s economy grew 5.2% year-on-year (y/y) in the fourth quarter of 2011, a slower pace than the full-year growth of 8.5%, led by easing household consumption demand and decline in public consumption and investment.

In Latin America and the Caribbean, Brazil’s industrial production rose 1.3% in February, recovering from a 1.5% decline in January, led by increases in auto production and capital goods assembly. However, output fell 3.9% on a year-on-year (y/y) basis as investment and manufacturing output were hit by a strong currency and weak economic growth.

In the Middle East and North Africa, Morocco’s producer-price index (PPI) inflation edged higher to 8.7% (y/y) in February, from 7.8% in January, led by a 21.1% (y/y) increase in fuel prices and higher food price inflation.