Important developments today:
1. Greek bonds continue to fall amid fresh worries over financing situation
2. U.S. retail sales up sharply in March
3. Chinese home prices rise 11.7% for the year
Greek bonds continue to fall amid fresh worries over the country’s financing situation. Greek government bonds fell for a second day, as skepticism over the implementation of the Euro-Group/IMF €45 billion rescue plan for the country remains strong. A warning from rating agency Moody’s about the possibility of another ratings downgrade in the near future also weighed on Greek bond prices. Yields on 10-year Greek government bond increased 17 basis points (bps) to 6.98%, while the yield premium over German bunds (the benchmark for borrowing in Europe) also climbed 17bps to 382bps. Spreads averaged about 65 bps over the five years through November, before market jitters materialized over the country’s deepening financing problems.
Source: Department of Commerce
U.S. retail sales post strongest increase in 4 months. U.S. consumers substantially increased their retail purchases in March, as the effects of harsh winter weather that curbed activity in February was lifted in the new data. Sales at retail outlets increased 1.7% (m/m), according to the latest report from the Commerce Department, bringing the year-on-year recovery to 8%. Some of the sharp upswing in March numbers can be attributed to an early Easter as well, which prompted holiday related spending. Sales of automobiles grew 7.5% (m/m), after declining for the previous three months, while retail sales excluding autos increased 0.6%. Overall consumer spending has increased for five months to February, which, coupled with today’s retail sales report, confirms that the economic recovery is no longer solely grounded in gains in manufacturing.
In a related report from the Labor Department…inflation at the consumer level remained subdued in March, with the headline CPI index edging just 0.1% higher (m/m) for a 2.3% gain over year-earlier levels. Core CPI, which excludes food and energy remained flat over the same period, and increased just 1.1% (y/y), towards the lower end of the Federal Reserve’s target of 1-2% core inflation. The latest data on prices confirms that inflation does not pose serious risks to the economic recovery at current rates, and gives the Federal Reserve room to leave interest rates unchanged at record lows for the time being.
Among emerging markets:
In East Asia and the Pacific, China’s real-estate property prices increased a record 11.7% in March (y/y), amid concerns about a bubble brewing in the housing market. The government had raised mortgage rates and reinstalled a sales tax on homes during the first two months of 2010 to stem the increase in property prices. In March the government announced that developers will have to pay a higher deposit for land purchases and banned lending to builders hoarding land or property in expectation of higher prices.
In Latin America and the Caribbean, Brazil’s retail sales surged 12.3% year-on-year in February, up 1.6% on the month. Annual growth was the strongest in two years surprising markets.
El Salvador’s remittances recorded their first gain since October 2008 in March, rising 8.7% year-on-year to US$343 million.
In Central and Eastern Europe, Hungary’s industrial output rose for a second consecutive month in February, up 8.4% year-on-year, on stronger external demand. Exports expanded 15.5% in February (y/y) down from 16.3% in the previous month; imports contracted 8.7% compared to a 10.6% decline in January.
In Sub-Saharan Africa, South Africa’s retail sales fell 1.5% in February (y/y), matching January’s drop, and marking the 13th consecutive month of declines as consumer spending remains exceptionally weak.