Important developments today:
1. Global equities lower on renewed debt concerns
2. U.S. housing market market recovery remains fragile
3. South Africa's current account deficit narrows in Q4-2009
Global equities lower on renewed debt concerns. World stock markets slumped for a third day yesterday, amid concern that growing sovereign debt-burdens will hamper future growth of the global economy. India’s interest rate hike also added pressure on stocks as investors worried other central banks in the region will tighten fiscal measures to curb inflation. As debt concerns over Greece continued to weigh on overall sentiment, the benchmark MSCI World Index fell 0.5% on Monday, posting its longest losing streak in six weeks. The MSCI Emerging Market Index also slipped 1% on a third day of declines. Meanwhile, crude oil prices fell to a nearly three-week low on Monday, slipping below $79/bbl, extending a decline that began after India’s central bank raised interest rates for the first time in two years on Friday. The yield on 2-year U.S. Treasury notes, which move inversely to prices, dropped 2 basis points (bps) to 0.97%, while the five-year note’s yield fell 2 bps to 2.44%.
Political-economy disputes still simmer. Finding common ground in the European Union to come to resolution on the issue of financial aid for Greece became more problematic today, as Jean-Claude Trichet, President of the European Central Bank spoke out against offering low-interest loans for which the Greek government has pressed. Trichet’s demands for stringent terms for any loans to the country, and German Chancellor Angela Merkel’s new push for sanctions against nations that breach deficit limits have heightened the chance that Greece will leave a March 25-26 summit empty handed. This could move Greek Prime Minister Papandreou to decide whether he is ready to fulfill his threat and turn instead to the IMF for assistance.
in other developments, Chinese Premier Wen Jiabo appealed to international chief executive officers gathered in Beijing to help “…the world avoid a trade and currency war”, as lawmakers in the United States call for stronger measures to compel China to revalue the yuan, Bloomberg reports. Last week 130 U.S. lawmakers sent a letter to Treasury Secretary Geithner to urge tougher measures, including higher import tariffs to force China to revalue its currency. This, in turn came in response to Wen’s comments on March 14, when he said that the yuan was not undervalued, and that pressure for currency gains can amount to ”protectionism.”
Source: National Association of Realtors
U.S. housing market remains fragile. Sales of existing homes fell for a third straight month in February, as purchases dropped by 0.6% (m/m) to an annual rate of 5.02 million, the lowest level in six months. Though some of the slowing in sales activity was a result of heavy winter storms in the Northeast, it is apparent that the extension and expansion of the federal tax credit that generated momentum in the housing market and stabilized sales in the second half of 2009 has yet to generate demand this year. The weak sales data for February reported by the National Association of Realtors was also affected by a 9.5% increase in supply, as distressed properties and foreclosures continued to come onto market. Tomorrow’s report on new home sales from the Commerce Department will likely show a more comprehensive picture of the housing market.
French business sentiment perks up on stronger export orders. Manufacturers in France took heart as export order books for aircraft and electronics began to fill. The INSEE index of sentiment increased to 94 contrasted with a 91 reading in February. As domestic stimulus programs are in process of being phased out, French production is being supported by increasing exports (up 2.7% in January (m/m)) aided by the weakened euro and the burgeoning tenor of world trade.
Among emerging markets:
In Sub-Saharan Africa, South Africa’s current account deficit narrowed to 2.8% of GDP in the fourth quarter, the lowest in more-than four years, and down from a revised 3.1% of GDP in the third quarter. Imports plunged 7.1% in 2009 as recession undermined domestic demand, helping the current account gap to narrow to 4% of GDP for the year. Meanwhile consumer spending increased for the first time in six quarters, up an annualized 1.4%, following a 1.9% contraction in the third quarter. For the year as a whole household consumption declined 3.1%, the first decline since 1992. Gross fixed capital formation dropped an annualized 0.9% in the fourth quarter, much less than the 6.5% decline recorded in the third. Overall GDP gained an annualized 3.2% in the fourth quarter.