Important developments today:
1. Euro Finance Ministers agree on details for Greek aid package
2. China reports first monthly trade deficit since 2004
3. Further setbacks to European industrial production
Bond default risk falls sharply on Greece aid plan. The cost of insuring corporate bonds in Europe and Asia against default declined on Monday, as European leaders unveiled details of an emergency loan-facility for debt-laden Greece. Spreads on the Markit itraxx Crossover Index of 50 companies with high-risk investment credit ratings declined by 9 basis points (bps) to 409bps today the lowest in three weeks, according to JP Morgan Chase. Contracts on the Markit iTraxx Asia Index of 50 investment-grade companies dropped 7 bps to 89bps, the biggest decline since December 1st.
According to announced details of the Euro Area/IMF emergency financial plan for Greece, the country would receive as much as €30 billion ($40.5 billion) in loans at below-market interest rates for Euro Area member states, with another €15 billion from the International Monetary Fund. Markets cheered the potential rescue plan for Greece as it eased concern of a wider debt crisis; but some investors remain concerned about the Greece’s long-term economic outlook and the prospect of further European debt difficulties. Credit-default swaps on Greek sovereign debt tumbled 69 bps to 357 bps.
Euro-Group finance ministers agree to details of a package for Greece. As Greek borrowing costs surged to an 11-year high yesterday, Finance Ministers of the Euro Zone countries shifted into action, offering as much as €30 billion in three-year loans to the country at 5% during 2010. As much as €15 billion would also come from the IMF. Following the news Greece’s 3-year bond yields plummeted 90 basis points to 6.18%, while the euro gained as much as 1.4% vis-à-vis the dollar to $1.3629. Whether in fact Greece will need to tap the aid on offer to make debt rollovers in April and May, and to cover anticipated deficits for the remainder of the year will to a large degree depend on the response of bond markets—this according to the Greek Finance Ministry. Yesterday’s teleconference of euro-region officials left open how much Greece might need in 2001 and 2010, the final years covered by the package.
Source: Haver Analytics
China reports first monthly trade deficit since 2004. Imports to China surged 66% in March (y/y) while exports grew 24%, causing the Chinese trade balance to move to a deficit position for the first time since February 2004. In annualized terms, the shortfall was modest, about $37.5 billion in seasonally adjusted terms. While the movement of Chinese trade from large surplus to deficit reflects a dramatic shift in the pattern of global trade imbalances, the deficit is likely to be temporary, the result of several months of stimulus-generated import demand that is likely to slow as the fiscal stimulus begins to unwind. Indeed, momentum in import growth (3 month rolling, saar) decreased in the latest month from 113% to 74%, which while still a vibrant pace of growth, indicates that an easing in domestic demand is starting to take effect.
Further setback to European production. Italy joined fellow EMU members Germany and France in posting sub-par industrial production growth in February, though weather was likely a factor restraining growth to nil in the month. As elsewhere in the Euro Area, rising unemployment is taking a toll on consumer spending, and export markets in Central and Eastern Europe continue to present difficulties as many countries adjust to high current account deficit positions. The Italian government has announced a further €300 million in subsidies for consumer purchases of goods such as home appliances for 2010, but this contrasts with €1 billion provided in 2009, which provided incentives for car trade-ins. From a year earlier, Italian production is up a modest 2.9%, that in Germany 4.9% and in France, 4.6%, in all cases, insufficient to begin to make a dent in the dole queue.
Among emerging markets:
In South Asia, India’s industrial output climbed more-than 15% for a third consecutive month in February (y/y), as demand for autos and televisions increased, raising the odds of an interest rate hike by the central bank.
In Latin America and the Caribbean, Peru’s trade surplus more-than doubled to $757 million in February from a year earlier, as exports surged 42% to $2.57 billion, while imports rose 20% to $1.81 billion (y/y).
In Sub-Saharan Africa, Namibia’s consumer price inflation eased to 5.6% year-on-year in March, from 6.3% in February, according to central bank data, lowest inflation rate in at least three years.