Important developments today:
1. U.S. treasuries drop amid strong U.S. retail sales and growing European debt optimism
2. German consumer confidence holds steady despite Euro Area debt crisis
U.S. treasuries drop amid strong U.S. retail sales and growing European debt optimism. Treasury prices declined for a second day on Monday as speculation European leaders are taking additional steps to combat the region’s debt crisis damped demand for safe-haven government debt. An increase in U.S. Thanksgiving retail sales, which somewhat eased concerns about the prospect of a recession, also weighed negatively on treasury prices. Yield on the benchmark 10-year Treasury note climbed 8 basis points (bps) to 2.04% in morning trade, after reaching 2.08%, the highest level in two weeks. 30-year bond yield also rose 9 bps to 3.01%, rising above 3% for the first time since mid-November. Meanwhile, German bunds fell as well, with benchmark yields rising to three-month high.
German consumer confidence holds steady despite Euro Area debt crisis. Germany’s market research group GfK’s forward looking consumer climate index is set to rise to 5.6 in December, up from the revised 5.4 points in November. Indeed, the sub-index on consumers’ willingness to spend rose to the highest level since January – this in spite of the escalating Euro Area debt crisis, thus pointing to resilience among German consumers. Indeed, much of the 2.0% (q/q, saar) third quarter GDP growth in Germany was supported by the strength in consumer spending, which has been supported by rising employment and incomes. The ongoing show of strength in consumer spending in Germany, which contrast with high-spread Euro Area countries, bodes well for German GDP growth in the fourth quarter. Nonetheless, how long the resilience of consumers in the Euro Area’s largest economy can be sustained amidst an escalating debt crisis remains questionable. Indeed, GfK’s two sub-indices on income and economic expectations declined compared to the previous month.
Among Emerging Markets
In East Asia and the Pacific, growth in the Philippines' economy decelerated for the third consecutive quarter amid Europe's debt crisis and weak U.S. growth, as real GDP grew 3.2% (y/y) down from 7.3 percent a year earlier. The economy grew 3.6 percent in the first 3 quarters, well below the central bank's full year target of 4.5 to 5.5 percent.
Vietnam's headline annual inflation eased from 21.6% in October to 19.8% in November according to preliminary estimates, falling below 20% for the first time since June 2011 despite the mild acceleration in food prices during the month.
In Sub-Saharan Africa, Zambia's headline inflation rate eased to 8.1% (y/y) in November from 8.7% in the previous month. This leaves headline inflation at an average of 8.8% for the first 11 months of 2011.