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Prospects daily: Euro Area GDP inches higher in Q1-2010.... LIBOR-OIS rising once more

Global Macroeconomics Team's picture

Important developments today:

1.  Dollar money-market rates to highest levels since August

2.  Euro-Area GDP surprises to upside in first quarter 2010

3.  U.S. trade deficit widens on oil bill


Dollar money-market rates to highest levels since August. The cost of inter-bank borrowing for three-month dollar funds increased to the highest level in almost nine months, as the IMF/EU’s $1 trillion financial plan for Europe failed to boost confidence sufficiently in commercial banks to step up their lending. The three-month London interbank offered rate, or LIBOR, for dollar funds increased to 0.43% this morning from 0.423% yesterday, the most since August 17, according to the British Bankers’ Association. Meanwhile, the three-month rate for euro, or EURIBOR, fell to 0.624% today from 0.628% yesterday, after soaring to 0.634% last week. Notably, EURIBOR established fresh lows each trading day over January 2010 to date. The differential between dollar LIBOR and the Overnight Indexed Swap—an important gauge of bank’s willingness to lend to one another—widened to 20.2 basis points (bps) today, the highest since August 21st. This spread soared to 364 bps after the collapse of Lehman Brothers in 2008.


Euro-Area GDP surprises to upside in first quarter 2010. Despite severe winter weather across Europe during the first months of 2010 which tended to dampen construction- and consumer spending, Eurostat today reported that GDP inched up 0.2% (q/q) for the Euro Zone in the first quarter of the year. Though details on the expenditure components of GDP are not available with this “flash” release, headline figures for the larger countries of the Area suggest that growth was muted across the board, and likely powered by net exports, with domestic conditions, especially consumption, remaining moribund. GDP in Germany advanced 0.2% (q/q), in France output gained a disappointing 0.1%, while Italy’s growth came in strongest of the Big-3 at 0.5% (q/q). In seasonally adjusted annualized terms (or ‘saar’), Euro Area growth of 0.8% contrasts with first quarter gains of 3.2% for the United States.

“Evidence is that recovery in the center of the euro region gathered pace during the second quarter”, notes Jacques Cailloux of RBS Group in London. “But it’s quite clear that given the situation in the periphery, we’re not immune to a financial shock to the system. The EU/IMF package should help stabilize financial markets and protect the real economy.”


Source: Department of Commerce


U.S. trade deficit widens on oil bill. The trade deficit grew in March, as gains in imports, particularly of petroleum and crude oil, offset a 4.5% (m/m) advance in exports. Imports of petroleum and petroleum products were up 10% (m/m) in March, leading to a $670 billion annualized trade deficit (in F.A.S. – C.I.F. terms), up 3.2% from the previous month. Excluding the oil bill, the deficit narrowed by 3.9% in the month [see ]. Oil imports were up due to an increase in prices (which averaged $74.3/barrel in March, the highest since October 2008) as well as volumes. Imports are likely to outpace exports for the coming months as the U.S. recovery broadens and consumer spending gathers pace, while exports are likely to grow in response to demand from emerging and developing economies, albeit at a slower pace, as the dollar strengthens in comparison to the euro.

Among emerging markets:

In South Asia, India’s industrial output gained 13.5% year-on-year in March, a sixth month of growth in excess of 10 percent, down from 15.1% in the previous month. Manufacturing expanded 14.3% in March (y/y) after gaining 16.1% in the previous month; mining picked-up 11% and electricity production advanced 7.7%.

In Central and Eastern Europe, GDP in the Czech Republic expanded 0.2% (q/q), Slovakia’s economy gained 0.8% and Hungary’s economy expanded 0.9% in the first quarter of 2010 according to data from the countries’ statistical offices. Romania’s GDP declined 0.3% from the previous quarter, while Bulgaria’s GDP declined by 4% on a year-on-year basis.

In Latin America and the Caribbean, Brazil’s retail sales surged 15.7% in March year-on-year, up from a revised 12.2% year-on-year advance in February, according to the national statistics agency. Peru’s trade balance posted a $1.41 billion surplus during the first quarter of 2010, almost three times the surplus recorded in the same period a year earlier. Exports increased 43.2% year-on-year to $7.73 billion; imports grew 29.4% year-on-year to $6.3 billion. Chile’s construction activity rose 1.4% year-on-year in March following 15 months of consecutive declines. On a monthly basis construction activity expanded 1.5%.

In Sub-Saharan Africa, South Africa’s manufacturing production increased 6.3% in March (y/y) adding to February’s 2.7% gain and marking the fourth consecutive month of annual gains, according to data released by Statistics South Africa. On a seasonally adjusted basis, output increased 2.6% on the month, on continued strong external demand, and notwithstanding the current strength of the rand.