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Prospects daily: German exports unexpectedly slump over January

Global Macroeconomics Team's picture

Important developments today:

1. Emerging market equities climb to 7-week high

2. German exports unexpectedly slump in January

3. Japanese private machinery orders slip in January

Emerging market equities push toward seven-week high. Developing-country shares climbed to highest levels in seven weeks on Wednesday after data showed Chinese exports and imports grew faster than expected. Market sentiment seems to be improving after China’s exports soared 46% in February (y/y), the biggest gain in three years, and bettering market estimates of a 38% advance. The fading of immediate concerns on Greece’s budget/austerity crisis also provided some support for investor sentiment. The MSCI Emerging Market Index gained 0.6% today, effectively erasing its losses for the year. The advance was led by a 2.9% rally in Ukraine’s PFTS index, which posted a seventh consecutive day of gains. Meanwhile, the MSCI World Index of 23 developed countries’ stocks dropped less than 0.1%; while MSCI Asia Pacific Index slipped 0.2%.

Treasuries advance ahead of $40 billion debt auction. U.S. Treasury debt prices moved higher in early Tuesday trading, advancing for the first time in five days amid speculation that today’s $40 billion three-year note auction will attract strong demand from investors seeking safety in low-risk U.S. government securities. Today’s auction is the first of three scheduled for this week, in which the government will sell $74 billion in new government debt. On Wednesday and Thursday, the Treasury will auction reopened 10-year notes ($21 billion) and reopened 30-year bonds ($13 billion). Yields on the benchmark 10-year note, which move inversely with prices, declined 2 basis points (bps) to 3.70%, while 30-year bond yields tightened 1 bp to 4.68%, according to BG-Cantor Market Data. Treasuries slumped last week after a government report showed better-than-expected job data for February.

Greek PM visits Washington to discuss “speculation” and Greek debt. Prime Minister Papandreou will join the European chorus of heads of governments now blaming the exacerbation of the Greek budget crisis as the work of “unprincipled speculators” (according to Mr. Papandreou). The Prime Minister meets today with President Obama and Treasury Secretary Timothy Geithner in his first U.S. visit since being elected in October, 2009 to underscore these concerns.

Credit default swaps (CDSs) have been singled out by European leaders as particularly disruptive, saying their use to protect against a Greek default was the equivalent of allowing someone to buy fire insurance on a neighbor’s house and then burning it down to collect. EU leaders are backing a lender of last resort that could come to a member’s aid in the same fashion that the IMF helps governments’ with fiscal difficulties.


Source: Bundesbank


German exports unexpectedly slump in January. Exports from Germany fell a seasonally adjusted 6.3% in January (m/m), registering the first monthly decline in shipments since August 2009 [see ]. External demand for German manufactured goods has been the driving force behind the country’s (uneven) recovery from the 2009 recession—particularly as domestic demand has remained moribund. Indeed, German imports were still registering negative year-on-year growth of 7.5% through December. But this trend appears to have reversed in January, with imports surging by a substantial 6% (m/m). As a result, the German trade surplus fell to €8.7 billion, about half of the recorded €16.6 billion surplus of December.

Japanese machinery orders slip in January. New private orders for machinery slipped 3.7% in January (m/m) according to the latest report from the Cabinet Office. However some moderation in machinery orders was expected after December’s unusually strong 20% (m/m) spike, and the 4.6% annualized growth in orders during the fourth quarter, following seven quarters of falling demand. Orders originating from manufacturers increased 3.3% in January (m/m), after a 17% jump in December, showing signs of a rebalancing of business investment in the sector. But orders placed by non-manufacturers slipped 12.9% in the month following a 23% surge in December, indicative of weaknesses in the Japanese services sector.

Corporate goods prices continued to reflect deflationary pressure in the Japanese economy in February, with the index recording a 1.5% decline (y/y), the fourteenth consecutive month with a drop in prices. However, the index appears to have bottomed out in the fourth quarter, signaling that while deflationary pressures persist, they may ease over coming months. Deflation has persisted in the Japanese economy, even as the BOJ has held the official interest rate at 0.1% for over a year, and introduced a ¥10 trillion credit program to support bank lending. But domestic demand has remained weak in this initial phase of recovery in the Japanese economy, even as unemployment fell last month to a 10-month low of 4.9%.

Japan’s coincident index up for a 10th month in January. That the strength of Japan’s economic recovery has been an upside surprise to market watchers goes without saying. GDP growth of 4.6% in the final quarter of 2009 (saar) featured a strong profile of activity across the board, with exports up 22% and private spending gaining 2.7%. Today’s release of the coincident indicator for January—a composite of 11 statistics including industrial production and retail sales—displayed a climb to 99.9 in the month from 97.4 in December, and suggests that Japan’s growth is continuing apace.

Exports are growing at a 30% annualized rate (saar), spurring manufacturing output (now advancing near 25%), while evidence now suggests that spillover into the labor markets and to household spending is underway. “Exports and production and starting to benefit the domestic economy, and that’s good news that we didn’t have last year,” said Ryota Sakagami of Nomura Securities in Tokyo. “We can see the export-led recovery spreading to capital spending and employment.”

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