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Prospects Daily: Euro Area bonds advance, US hiring slows…Egypt’s reserves fall to new lows

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Financial Markets… Japanese equities climbed to near 5-year highs and long-term government bonds surged on Friday, a day after the Bank of Japan unveiled aggressive monetary easing to revive the economy. The Nikkei 225 closed 1.6% higher, extending gains since mid-November to 48%. Benchmark 10-year Japanese bonds yields fell by as much as 12bps to a record low of 0.315% in morning trade.

Government bonds from France, Austria, and Belgium rallied today, pushing their 10-year yields to historic lows, as the ECB left its key policy rate unchanged yesterday with the President Draghi hinting at a rate cut in the near future. France’s 10-year yield fell as much as 15 basis points to a record low of 1.716%, and 10-year yields on Austrian and Belgian bonds dropped to 1.491% and 1.925%, both the lowest levels on record.

Developing-country stocks slid to a 4-month low, with the benchmark MSCI Emerging Market Index dropping 1.1%, its fifth consecutive decline, weighed down by weaker-than-expected US job data, China’s bird flu concerns, and accelerating capital outflows from South Korean equities. South Korea’s kospi index sank 1.6%, posting the largest weekly loss since May, as foreign funds reduced their exposures to the country’s shares by a net $1.2 billion this week amid growing risk of conflict with North Korea.

High-income Economies…The US jobs report for March showed employers hiring at the slowest pace in nearly a year in March. Only 88,000 jobs were added to non-farm payrolls, with steep job cuts in the retail and government sectors of 24,000 and 14,000 respectively. Unemployment fell to 7.6% in March from 7.7% in February, which was mainly due to 496,000 people leaving the labor force completely as the labor-force participation rate fell to 63.3%, the lowest since 1979. March's jobs numbers did not yet reflect much of the "sequester," the across-the-board federal budget cuts that will slowly take effect throughout the year, resulting in less hiring and fewer hours worked by government employees.

Germany's factory orders rose by 1.2% (3m/3m saar basis) in February after contracting by 1.9% in January as domestic orders picked up. On a monthly basis, orders rose 2.3% (m/m sa) in February after a 1.6% drop in January. However, unless there is a further monthly gain of close to 1%, total orders will be heading for a contraction in Q1 after growing by 4.1% (q/q saar) in Q4 2012. 

Euro Zone retail sales volumes fell a seasonally adjusted 0.3% (m/m) in February, following January's 0.9% increase. However sales are falling at a slower pace of -1.3% (3m/3m saar) in February compared to the 6% contraction in December.

Developing EconomiesEast Asia and Pacific: Philippines inflation eased to 3.2% (y/y) in March, down from 3.4% in February as prices of food and non-alcoholic beverages, utilities and transport posted slower annual increments during the month. Inflation is near the bottom of the central bank's 3 to 5% target range.

Latin America and the Caribbean:
Chile’s index of economic activity slowed by 0.1% (m/m sa) in February after falling 0.2% (m/m sa) in January. The index is monthly gauge which measures more than 90 percent of the components comprising Chile's gross domestic product, which is published quarterly. Given the slow start in the year the activity would need to pick up at least 1.4% (m/m sa) in March in order to match 2012Q4 growth of 6.2% (q/q saar).

Middle East and North Africa: Egypt's foreign exchange reserves reached new lows as net international reserves officially tallied to USD13.4 billion at the end of March. This represents a drop of 0.8% (m/m) or 11.2% (y/y).