U.S. Treasury yields rose broadly on Tuesday, with that of short-term notes climbing to their highest in more than two months, after robust consumer spending data reinforced concerns that the Federal Reserve might hike interest rates sooner than initially expected. Yields on U.S. 2-year Treasuries, which tend to be most sensitive to the outlook of the fed-fund rate, gained 4 basis points (bps) to 0.922 percent, its highest level since March 16. Yields on benchmark 10-year Treasury securities reached a one-month peak, advancing to as high as 1.89 percent.
Saudi Arabia is considering the sale of as much as $15 billion of dollar-denominated bonds this year, as the sovereign continues exploring different means to fund a burgeoning fiscal deficit in the face of lower oil prices. The government’s plan is encouraged by strong demand for Qatar’s latest $9 billion bond sale. The country has reportedly invited banks to arrange its first bond sale in international bond markets.
U.S. consumer spending jumped 1 percent (m/m) in April, from a revised 0.1 percent uptick in March, and above market expectations of a 0.7 percent gain. This is the biggest increase since August 2009, and was driven by a rebound in consumption as a result of cheaper fuel prices, lower interest rates and steady wage growth. Meanwhile, the core personal consumption expenditures price index (excluding food and energy costs), an inflation gauge preferred by the Federal Reserve, remained unchanged at 1.6 per cent in April (y/y) from March.
The Euro Area unemployment rate held steady at 10.2 per cent in April, similar to the reading in March. This is the lowest level since August 2011, with the lowest jobless rate below 5 percent recorded in the Germany, Malta, Austria, and Denmark. High unemployment rates of over 20 percent were posted in Spain and Greece, while France’s unemployment rate slightly eased to 9.9 percent in April from 10.1 percent in March. Meanwhile, according to flash estimate from the Eurostat, inflation is expected to edge up to -0.1 percent (y/y) in May, up from -0.2 percent in April spurred by increase in prices of services, food, alcohol and tobacco, and non-energy industrial goods. Lower energy costs continues to exert downward pressure on prices.
Japan’s industrial production rose 0.3 per cent (m/m) in April, a sharp slowdown from 3.8 percent increase in March, but above the market expectation of a 1.3 percent drop. This partially reflects the aftermath of the earthquake in Kyushu which disrupted supply chain and manufacturing activities. On an annual basis, industrial production shrank 3.5 percent in April, down from 0.2 percent growth in March, but better than the market expectations of a 5 percent slump. Separately, the unemployment rate remained unchanged at 3.2 percent in April from the previous month, and in line with economists’ expectations, possibly signaling further tightening labor market conditions.
Emerging and Developing Economies
Latin America and the Caribbean
Brazil's national unemployment rate rose to 11.2 percent in the three month period ending April 2016 from 9.5 percent in the period ending January. It was the highest reading since the beginning of the survey in January 2012, as the number of unemployed persons rose 18.6 percent, while employment fell 1.1 percent. A year earlier, the unemployment rate was recorded at 8 percent.
Chile’s industrial production fell 3.4 percent (y/y) in April, after a 3.9 percent increase in March. Mining output fell as copper production plunged 8.2 percent due to rains and landslides. Manufacturing production also fell, dragged down by lower production of food, mainly salmon, frozen trout and paper. In contrast, utility supply increased. On a monthly basis, industrial output fell 4.5 percent.
India’s GDP rose 7.9 percent (y/y) in Q1 2016, higher than a downwardly revised 7.2 percent growth in Q4, and beating market expectations of a 7.5 percent increase. It is the best performance in six quarters as the farm sector rebounded and manufacturing jumped. Considering full 2015/2016 year (April to March), the GDP in India advanced 7.6 percent, higher than 7.2 percent in the previous year.
Zimbabwe's central bank will start circulating local bank notes in October but the country will continue to use the dollar and other foreign currencies and will not be returning to a domestic currency abandoned in 2009. Reserve Bank of Zimbabwe governor John Mangudya described the local notes as vouchers meant to boost exports and generate foreign exchange and dismissed talk of a return to the local currency as "unfounded rumors".