Important developments today:
1. Greece tests teh waters with new bond issue
2. U.S. consumer spending rises for a 5th month in February
3. Japanese retail sales improve
Greece sells new bonds today to test the market. The Greek government announced Monday that it will issue €5 billion ($6.7 billion) worth of seven-year syndicated bonds, its first attempt to test investor confidence since the European Union agreed on a standby aid package for the debt-laden country last week. The issue comes as Greece need to raise as much as €20 billion to help refinance existing debts maturing in April and May. Meanwhile, demand for the issue seems to be a bit softer, with the books growing at a slower pace compared to the previous 10-year bond issued in early-March—books on the new bond currently stand at around €7billion compared with the more than €16 billion in orders received for the last issue of Greek government bonds.
Price guidance for the new issue was set at around 310 basis points over the benchmark mid-swap rate, to give a yield of about 6%, which is the same as the country’s existing seven-year notes. The yield premium demanded by investors to own Greek government bonds over benchmark German bunds, a key indicator of market confidence, increased marginally on Monday as the new bond launched. The current rate of borrowing costs is roughly twice that of equivalent German bonds.
U.S. consumer spending up for a fifth month in February. Despite wintry weather conditions, consumer outlays picked-up a moderate 0.3% in February (m/m) on the heels of a 0.4% gain in January, for a fifth month of unbroken advances. Personal incomes inched 0.1% higher, so that the saving rate dropped from 3.4% in January to 3.1%, the lowest since October 2008. “The consumer is still making traction with the overall recovery,” notes Russell Price of Ameriprise Financial in Detroit. “Factors are falling into place for the recovery to be sustained.”
Inflation at the core PCE level—the Fed’s preferred gauge of price changes-- was nil in February, a positive in the near term view for interest rates. Spending on durable goods dropped 0.2% in the month, more-than offset by a 0.9% gain in nondurables. Finally, on an annualized basis consumer spending is up 5.1% in nominal terms (saar), well above advances in incomes which have registered gains of 3.7%.
European confidence improves further in March. The Economic Sentiment Indicator, an index of business and consumer confidence in the Euro Zone compiled by the European Commission, climbed to 97.7 in March from 95.9 a month ago, indicating renewed optimism regarding economic recovery in the Area. The pickup in confidence was driven in large part by businesses that have seen stronger demand for European exports over the previous months, helped by a weakening euro. At the same time, consumer confidence remained unchanged from the previous month, and in fact fell sharply in countries that have announced austerity measures to tackle deep budget deficits, such as Greece, where consumer confidence fell to the lowest since 1990.
Source: Ministry of Trade, Economy and Industry
In Japan. Retail sales grew 0.9% in February (m/m) for a gain of 3.3% compared to the volume of sales in February 2008 according to the latest report from the Ministry of Economy, Trade and Industry (METI). Consumer spending in Japan has been slow to recover despite a gradual improvement in the unemployment rate, which hit a near record 5.6% in July 2009 before easing to 4.9% in January. But today’s 3.3% (y/y) increase in retail sales was well above median market estimates of a 1.6% (y/y) increase in spending, and the fastest pace of growth in retail spending recorded since March 1997. Indeed, the momentum growth (3 month rolling average, saar) for retail sales in January grew to 4.7%, the fastest pace since late 2007, in a further indication that domestic spending in Japan may finally be participating in the economic recovery, which so far has been led by external demand.