Important developments today:
1. Global equities and euro fall
2. U.S. factory orders and housing sales increase
3. China's manufacturing sector growth slows in April
Global markets: equities and euro fall, government bonds climb. Global equities were broadly lower on Tuesday, as nagging concerns about the euro-zone debt crisis and fears of slowing economic growth in China drove investors to ease away from taking risks. The benchmark MSCI World Index declined by half a percent, dragged down by more-than 1% losses in European shares. Spanish stocks plunged to a nine-month low, leading losses on regional shares, as Greek contagion fears weighed on investor sentiment. Asian stocks also fell with the MSCI Asia Pacific excluding Japan losing 0.8% (trading was closed in Japan for a holiday). And U.S equities opened lower in early Tuesday trading, with the Dow Jones Industrial Average and S&P-500 index sliding 1.5% and 1.6%, respectively.
The euro also edged down, dropping to fresh one-year lows against the dollar amid Greek bailout worries. The currency was trading at $1.3118 versus the dollar, down from $1.3207 on Monday.
Meanwhile, U.S. Treasury prices gained early on Tuesday, rebounding from overnight losses sparked by robust U.S. economic data, amid mounting doubts over the efficacy of the Greek financial package. Investors once more sought safe haven in U.S. government securities. Yields on the benchmark 10-year U.S. Treasury note fell 1 basis point (bp) to 3.67%, while the two-year note slipped 2bps to 0.97%, according to BG-Cantor Market Data. Treasuries have retained a keen edge even as the U.S. economic recovery appears to be gaining pace.
U.S. March factory orders in good stead. The Commerce Department’s inclusion of non-durable orders to last week’s first estimate of durable- and capital goods orders for March served to boost overall gains to 1.3% (m/m), matching the February advance. This portends favorably for near-term developments in production (and prospectively) employment. Demand for capital goods moved up a sharp 4.5% in the month, making up for weakness in the early months of 2010. And durable goods orders, excluding the volatile transport component, jumped 3.1% in March, the strongest advance since August 2005. “A lot of manufacturers may be struggling to keep up with demand,” notes Russell Price of American Financial in Detroit. “We’re seeing clear demand improvements from both consumers and business that should provide a strong tailwind for several months at least.”
U.S. housing contracts increase in March. Pending home sales, or the number of signed purchase agreements still awaiting loan disbursement, increased by 5.3% in March (m/m), according to the National Association of Realtors. Contracts for pending sales were expected to rise in March following a gain of 8.2% (m/m) in February, as more Americans rushed to close agreements before the April 30 expiration of the federal tax credit. Home sales will likely demonstrate a sharp upswing in April’s numbers as well, before moderating in May as the tax incentive expires. Despite the incentives strong positive effect on sales, improvements in net job growth will be required to sustain demand for housing and limit foreclosures in the absence.
German retail sales decline sharply in March. Retail sales (excluding cars) in Germany plummeted 2.4% (m/m) in March, the sharpest decline in a year, in a fresh sign that domestic spending remains slack, despite a strong industrial sector rebound in Europe’s largest economy. The decline was well below median market forecasts of a flat reading for the month, following 1.1% (m/m) growth in February. Sales at retailers have not yet returned to positive year-on-year growth in Germany, registering a 2.6% decline in March, while the momentum of sales (3m/3m, saar) turned negative over the same month, dropping from 1.4% to a fall of 3.5%. While some seasonal statistical difficulties surrounding the floating Easter holiday may be responsible for the sharp nature of the spending decline in March, German households have been hesitant to increase outlays in the face of only slow improvement in labor markets.
Among emerging markets
In East Asia and the Pacific, China’s manufacturing growth slowed in April, as signaled by the HSBC Holdings Plc/Markit Economics’ PMI index, which fell to a six-month low reading of 55.4. This suggests that efforts by the government to ease the pace of activity to stop the economy from overheating appear to be bearing some fruit. However, the government’s overall activity index released on May 1st indicates that the economy continues to power ahead. That index increased fairly sharply to 69.9 in April from 65.9 in March.
Malaysia’s exports jumped 36.4% year-on-year in March, on stronger external demand for electronics and commodities. Imports increased 45.3% year-on-year, pushing the country’s trade position into wider surplus of 14.35 billion ringgit from 11.7 billion ringgit in February.
In Latin America and the Caribbean, Mexico’s IMEF manufacturing index increased to 54.6 in April from a downwardly revised 53.7 in March, data released by the Mexican Institute of Financial Executives show. Meanwhile Mexican economists surveyed by the central bank raised their 2010 growth forecasts for a fifth month running, and expect the economy to grow 4.2% this year.
Brazil’s industrial output rose 2.8% month-on-month in March, the fastest pace in 5 months. Industrial production increased 19.7% year-on-year, the fastest annual pace since the series began to be reported in 1991. Meanwhile Brazil’s trade surplus almost doubled in April to $1.28 billion.
In Central and Eastern Europe, Romania’s central bank cut its policy rate to a record low 6.25% from 6.5% today to help kick-start economic growth. This is the smallest cut this year. About 15% of the total assets of Romania’s banks are owned by Greek parent banks; and lending costs are set to rise.
In Sub-Saharan Africa, South Africa’s unemployment rate increased for a fourth consecutive quarter in the first quarter of 2010, rising to 25.2% from 24.3% in the last quarter of 2009. South Africa lost 870,000 jobs in 2009 as the economy slipped into recession. Meanwhile vehicle sales rose 26.6% year-on-year in April, the fourth consecutive month of gains, after rising 15% in March. Passenger car sales jumped 28% (y/y), while exports of cars surged 51.6%.