Important developments today:
1. Government bonds from the euro-zone’s most indebted countries advance
2. U.S. Q1 GDP stays at 1.8% in revised estimate
Government bonds from the euro-zone’s most indebted countries advance. Greek, Spanish, and Portugal government bonds gained on Thursday following the positive comments from the head of the European Financial Stability Facility (ETSF). Klaus Regling, chief executive of the organization suggested the contagion of the euro-zone debt crisis is unlikely to spread further. He was also quoted by a Financial Times article as saying yesterday that China is interested in buying Portuguese bailout bonds to be issued in mid-June. Greek 10-year bond yields slid 22 basis points (bps) to 16.51%, while Spanish 10-year yields fell 7 bps to 5.28%. Yields on 10-year Portuguese bonds also dropped 7 bps to 9.65%. In contrast, Irish 10-year bond yields were 3 bps higher at 11.02%, after earlier touching a record high of 11.07%. Despite improved market sentiment for the troubled euro-zone debt today, investors remain highly cautious about the long-term outlook given that the European Union is facing a challenge preventing Greece from defaulting on its debt.
U.S. Q1 GDP stays at 1.8% in revised estimate. US real GDP grew at an annual rate of 1.8% in Q1 2011, according to a release today by the US Commerce Department, thereby confirming the preliminary release earlier this year [see Chart at http://gem or http://www.worldbank.org/gem]. However, there were changes to its composition as consumer spending was lower than initially estimated but was compensated for by higher than previously estimated spending by businesses on equipment and software and business inventories. Both exports and imports accelerated more than previously estimated resulting a muted change in the contribution of net exports.
Dogged by a weak labor market and higher fuel and food prices, consumer spending expanded at an annual rate of 2.2%, while supported by record high profits, businesses increased investments by 3.4% in the first quarter. Though most analyst expect growth to pick-up in the US later in the year, recent data releases including on factory orders, new residential construction, and retail sales point to a sluggish start to the second quarter.
Among emerging markets
In South Asia, India may increase diesel, kerosene, and cooking oil prices to reduce subsidies, which exceeded 400 billion rupees last year, and limit losses at state-run refineries, which face losses of 2 trillion rupees this fiscal year.
In Latin America and Caribbean, Brazil’s current account deficit declined to $3.5 billion in April from $5.7 billion in March, according to the central bank. FDI fell to $5.5 billion in April from $6.8 billion in March. Mexico’s current account deficit stood at $1.376 billion in the first quarter.
In Sub-Saharan Africa, South Africa’s producer prices rose by an annual 6.6% in April, after posting a 7.3% gain the previous month.