Important developments today:
1. Treasuries advance amid the flight to safety
2. U.S. leading indicators fall modestly
3. Initial claims rise sharply in latest week
Treasuries advance amid the flight to safety. U.S. Treasuries’ prices jumped on Thursday, pushing the 10-year note’s yield to the lowest level this year, as renewed concerns over the policy actions of European authorities drove investors towards the relative attractiveness of U.S. government debt. Treasuries extended gains after the government reported that U.S. jobless claims rose last week, contrary to expectations for a small decline. Yields on benchmark 10-year notes, which move inversely with prices, fell 10 basis points (bps) to 3.28% this morning, the lowest since Dec. 1, while 2-year note yields eased 9 bps to 2.04%, according to BGCantor Market Data. Meanwhile, the difference between yields on 10-year bonds and Treasury Inflation Protected Securities (TIPS), a gauge of trader expectations for inflation, narrowed to as low as 2.06%, the least since Nov.4. This suggests that investors are betting on the tame U.S. inflation outlook following the Labor Department report that showed a decline of consumer prices in April for the first time in more than a year.
U.S. leading indicators fall modestly. The index of Leading Economic Indicators (LEI) measured by the Conference Board posted a decrease of 0.1% (m/m) from a reading of 109.4 in March to 109.3 in April. While the decrease is modest, this is the first fall in the outlook indicator after 12 months of gains, and follows 1.4% (m/m) growth in March, which was the strongest pace of growth in the index since May 2009. In some part the weakness in the LEI for April is the natural weakening of sentiment after particularly strong results for March. However, the decline in the index does signal market expectations regarding a slower pace in the economic recovery in the next 6 months.
Initial claims rise sharply in latest week…The number of new claims for unemployment insurance rose sharply by 25,000 to 471,000 in the week ending May 14, disappointing median market expectations of a small drop in the number of initial claims filed with the Labor Department. At the same time the number of people collecting extended benefits fell by 40,000 to 4.61 million, while those collecting extended federal benefits declined by 73,000 to 5.34 million. The increase in layoffs interjects a discouraging note amid recent reports of rising payrolls, where were up 162,000 in March and 290,000 in April, the strongest growth in 4 years.
Japanese economy grows at 4.9% pace in first quarter…The Japanese economy expanded at an annualized pace of 4.9% in the first quarter, as exports, particularly to Asian emerging markets such as China, allowed the economy to grow for a fourth straight quarter. Although the 4.9% growth in the first quarter was weaker than median market expectations of a 5.5% annualized pace, growth accelerated from the upwardly revised 4.2% pace seen in the previous quarter.
Belgian confidence declines…the National Bank of Belgium’s consumer confidence index dropped to a reading of -13 in May from -8 the previous month, as concerns regarding the debt situation in southern Euro Zone countries and its effect on the euro weighed on survey participants.
Among emerging markets:
In South Asia, Sri Lanka’s central bank kept its key interest rate on hold at 9 for a sixth straight month as inflation is slowing on increased agricultural supplies from former Tamil rebel-controlled areas. Inflation eased to 5.8% in April down from an average of 12.6% in the five years through 2009.
In Latin America and Caribbean, Colombia’s imports surged 24.7% (y/y) in March, to $3.32 billion in March, leaving a trade surplus of $98.7 million.
In Middle East and North Africa, UAE’s consumer price inflation accelerated to 0.8% (y/y) in April, marking the fastest pace in almost a year, on higher food beverages and transport prices, according to data released by the National Bureau of Statistics. On the month prices were down 0.03%.
In Sub-Saharan Africa, Kenya’s economy may expand as much as 5% in2 010, on improved agricultural output, after expanding 2.6% in 2009, according to Planning Minister Wycliffe Oparanya. Growth last year was driven by tourism and construction industries, which expanded by 42% and 14.1%, respectively, according to the minister. Manufacturing expanded 2% while transport and communication advanced 6.4%.
- Prospects Daily