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Prospects Daily: Japanese exports move towards positive year-over-year growth

Global Macroeconomics Team's picture

Important Developments today:

Growing signs of sovereign debt tensions

Sales of new homes in the U.S. decline

Japanese exports move towards positive year-over-year growth

Growing signs of sovereign debt tensions. Traders are purchasing insurance against the risk of debt default by sovereigns at more than five times the rate of corporate debt, as ballooning government deficits spurs fears over the health of many OECD economies. Indeed, the net amount of credit default swaps outstanding on 54 sovereigns from Japan to Italy soared 14.2% since early October, compared with 2.6% for all other contracts, according to Depository Trust & Clearing Corp. data. The increase was led by several Euro Area economies, with the amount of protection on Portugal rising 23%, Spain 16%, and Greece 5%. The jump in trading of sovereign debt swaps comes as the cost of protecting against the risk of default of government debt is now higher that of top-investment-grade companies in some cases. It has been reported that credit-default swaps on nearly a third of the 125 companies in the benchmark Markit iTraxx Europe Index are trading for less than contracts on the government of the country in which the firm is based.

Hungary issues new dollar bond. The Hungarian government sold $2 billion in 10-year bonds yesterday, in the country’s first new dollar bond issue in five years, bringing total EM sovereign offerings to over $16 billion thus far this year. Hungary’s new debt was sold at a discount price of 99.86, bringing the yield to 6.269% or 265 basis points over comparable U.S. Treasuries. Demand for the notes reached around $7 billion, more-than three times the amount on offer, with 65% of the orders coming from U.S.-based investors. The country also plans to issue €1.5 billion in foreign debt this year. Notably, Emerging European issuers typically borrow in euros, but Hungary is following the steps of regional peer Poland which launched a dollar bond last year.


Source: Bank of Japan


U.S. new home sales decline. Sales of new homes declined 7.6% (m/m) to an annual rate of 342,000 in December, bringing total sales for 2009 down to 374,000, 23% below the previous year, the lowest level of homes sold since records began in 1963. The report on new home sales is not surprising following a report earlier this week from the Commerce Department that showed a 17% (m/m) decline in the sales of previously-owned homes. The slump in December sales followed some inflation in demand in the previous months as potential buyers rushed to close contracts by November to meet the initial deadline for the $8,000 federal tax incentive. Since the government program was consequently extended to June 2010, housing sales are expected to pick up again in the coming months.

Japanese exports break into positive year-over-year growth. Japan’s exports increased in year-on-year terms for the first time in 15 months during December, helping the country post a monthly trade surplus and ease concerns that the economy is headed for a double dip recession [see ]. Booming import demand from China, which overtook the U.S. as Japan’s largest export destination in 2009, has played a large part in this rebound. Shipments abroad climbed 11% on a customs basis (y/y), while imports declined 4% over the same period. The marked improvement in exports on year-over-year terms owes to a favorable comparison against December 2008, when trade had begun to freefall globally. In monthly terms, Japanese exports have been growing since March, logging in an increase of 2.5% in December over November. While further improvement in Japanese exports may falter as governments worldwide begin to ease stimulus measures that have been driving domestic demand over the first quarter, the Bank of Japan expects demand for Japanese exports to remain robust in 2010.

Among emerging markets:

In Latin America and the Caribbean, Brazil’s central bank is expected to hold its key interest rate unchanged at 8.75% for a fourth consecutive month in January, according to 40 economists surveyed by Bloomberg.

In Sub-Saharan Africa, South Africa’s consumer price inflation accelerated to 6.3% in December from 5.8% in November (y/y) exceeding the central bank target for the first time in three months. Inflation accelerated after the government increased gasoline costs by 3.5% in December (y/y).

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