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Prospects Daily: U.S. Treasuries fall for second day on growing risk appetite, U.S. jobless claims jump more-than-expected, China’s flash manufacturing PMI rises to five-month high

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Financial Markets

U.S. Treasury prices fell for a second day on Thursday as stronger-than-expected China’s manufacturing PMI and positive U.S. data on existing home sales and factory activity boosted investors’ risk appetite, while more-than-expected U.S. first-time jobless claims failed to prompt safe-haven demands. Benchmark 10-year Treasury yields climbed 1 basis point to 2.544% after dropping to 2.473% last week, the lowest level since October. U.S. government securities extended losses following minutes of the Federal Reserve’s latest policy meeting yesterday that showed the central bank’s officials weighed several measures to raise short-term interest rates.

Turkish government bonds gained, sending benchmark yields to the lowest level in more than six months, and the lira depreciated after the nation’s central bank unexpectedly lowered its key interest rate. The yield on the nation’s two-year government notes slid 25 basis points to 8.85%, the least since November 19, and the rate has declined 125 basis points thus far this year. Turkish lira weakened 0.1% against the dollar to 2.0973.

High Income Economies

Increasing for the third consecutive month, the Conference Board leading economic index for the U.S. rose 0.4% (m/m) in April, following an upwardly revised 1.0% increase in March. The latest increase matches estimates and reflects improving housing and financial market conditions.

U.S. first-time jobless claims jumped more-than-expected to 326,000 in the week ended May 17th up from the previous week's revised level of 298,000. While the previous week’s figure was upwardly revised from 297,000, it still represents the lowest number of claims in seven years. The less volatile four-week moving average edged down to 322,500, a decrease of 1,000 from the previous week's revised average of 323,500. Continuing claims, a reading on the number of people receiving ongoing unemployment assistance, also fell to 2.65 million in the week ended May 10th from the previous week's revised level of 2.67 million.

According to second estimates the U.K. economy grew 0.8% (q/q sa) in Q1 following 0.7% rise in Q4 2013. The increase was driven by increases in household spending (0.8%) and business investment (2.7%) suggesting that a more balanced recovery is on track. At the same time, government spending gained only 0.1% while gross fixed capital formation advanced 0.6%. Also, exports fell by 1.0%, while imports fell by slightly more than exports.  

Developing Economies

East Asia and Pacific

China’s HSBC/Markit flash manufacturing PMI rose to 49.7 in May, a five-month high, from 48.1 in April, beating economists’ forecast of a score of 48.3 but remaining below the 50-no change mark, which denotes contraction. The improvement was broad-based, with new orders and new export orders both expanding. Notably, the manufacturing output index rose to a four-month high 50.3, up from 47.9 in April. However, backlogs of work continued to contract, and suppliers’ delivery time lengthened after remaining unchanged in the previous month, while hiring fell at a rapid pace.

Europe and Central Asia

At its meeting of May 22nd 2014, Turkey’s central bank decided to lower its key benchmark rate, the one-week repo rate, by 50 basis points to 9.5 percent, citing a decline in uncertainties and improvement in risk premium indicators. The overnight lending rate and overnight borrowing rate were left unchanged at 12% and 8%, respectively.

Sub-Saharan Africa

At its meeting of May 22nd 2014, South Africa’s central bank left its key benchmark interest rate unchanged at 5.5% for the second consecutive meeting, citing upside risks to inflation which breached the central bank’s upper limit in April, driven mainly by supply side factors but also exchange rate pass-through effects, and a deteriorating domestic economic growth outlook. The central bank’s revised downward its GDP growth forecast for 2014 to 2.1% amid anticipations of a strong decline in growth in the first quarter.

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