Past Events
• USD PPI, out at 0.7% versus expected 0.4%, prior -0.6%
• USD Unemployment Claims, out at 456K versus expected 452K, prior 480K (revised)
• USD Existing Home Sales, out at 5.35m versus 5.28m, prior 5.01m (revised)
• GBP Public Sector Net Borrowing, out at 23.5bn versus expected 24.1bn, prior 9.7bn (revised)
• GBP Retail Sales, out at 0.4% versus expected 0.7%, prior 2.5% (revised)
• CAD Bank of Canada Monetary Policy Report
• CAD Bank of Canada Press Conference
Upcoming Events
• USD Core Durable Goods Orders m/m (1230 GMT)
• USD New Home Sales (1400 GMT)
• EUR German Ifo Business Climate (0800 GMT)
• GBP Prelim GDP q/q (0830 GMT)
• CAD Core CPI m/m (1100 GMT)
• CAD Core Retail Sales m/m (1100 GMT)
Market Commentary
In the US wholesale prices rose more than forecast in March, boosted by higher costs for energy and the biggest gain in food since 1984.The 0.7% increase in prices paid to factories, farmers and other producers followed a 0.6% drop in February, the Labor Department said today in Washington. Excluding fuel and food, so-called core prices rose 0.1% for a second month, restrained by cheaper cars and appliances.
Inflation may be limited as companies rely on productivity gains to offset higher costs of energy and raw materials. Excess capacity and slow job growth underscore the Federal Reserve’s pledge to keep interest rates close to zero for an “extended period.”
The number of Americans filing first-time claims for unemployment benefits dropped by 24,000 to 456,000 in the week ended April 17th, the Labor Department said in a separate report yesterday. The number of people receiving unemployment insurance and those getting extended benefits also fell.
Sales of U.S. previously owned homes rose in March for the first time in four months as buyers took advantage of a government tax credit and the weather improved. Purchases climbed 6.8% to a 5.35 million annual rate, from a 5.01 million pace in February, figures from the National Association of Realtors showed yesterday in Washington. The median prices climbed 0.4% from March 2009.
The thawing out from February’s blizzards probably helped the market last month, while the Obama administration’s credit worth up to $8,000 may keep underpinning demand through June, when it’s next due to lapse. The outlook for the second half of the year depends on the speed and magnitude of the recovery in the job market, indicating the housing rebound may be slow to develop.
The US dollar climbed against the euro for the fourth day, gaining 0.75% to close at EUR1.32854.
In the UK yesterday public sector net borrowing came in below the Treasury’s forecast made one month ago according to figures released by the Office for National Statistics. The borrowing figure for the 2009-10 fiscal year is lower than the £166.5bn predicted by Chancellor Alistair Darling in April’s Budget. Borrowing totaled £152.8bn – lower than the £155.9bn forecast.
March’s deficit was £23.5bn, below the forecast level of £24.1bn. Borrowing in March is typically high as civil servants seek to spend the remainder of their annual budgets.
While the government may be able to highlight that borrowing has come in below recent forecasts made in the budget, the level of public sector debt remains at record high levels. Total government debt now stands at £890bn – equivalent to 62% of GDP. The £163.4bn borrowed is equivalent to 11.6% of GDP.
With the election only two weeks away, parties are sparring over when and how to tackle the biggest budget deficit in the G7. Opinion polls show both Labour and the Conservative parties losing support to a resurgent Liberal Democrat party, raising the prospect that Labour will emerge as the largest party in Parliament and remain in power with Liberal Democrat support.
Also in the UK retail sales volumes grew moderately in March as retailers raised prices, according to data released yesterday. The volume of retail sales including auto fuel rose by 0.4% on the month in March to stand 2.2% above levels a year earlier. However the rise was below the median forecast for an increase of 0.7% on the month and 2.5% on the year.
There was, however, an upward revision to the February output which now shows growth of 2.5% from an originally estimated 2.1% increase. Excluding auto fuel sales volumes rose 0.2% on the month and were up 4% on the year.
While volumes of sales grew moderately there was evidence that retailers increased prices in March. The value of sales was up 0.9% on the month and the implied deflator, a measure of High Street inflation, rose to 2.5% from 1.8% including auto fuels. Excluding auto fuel the deflator increased to 0.7% from 0.1%. The rising deflator may well be due to the depreciation in Sterling seen over the past year which will have pushed up the cost of many imported goods sold by retailers.
The pound fell slightly against the US dollar yesterday, losing 0.11% to close at GBP 1.53686.
In Europe new data from Greece now shows a budget deficit of 13.6% of GDP, not the 12.7% first reported. Eurostat, which was given new data by Greece, said doubts over the figures meant they could be revised again.
The organization said in a statement: “Eurostat is expressing a reservation on the quality of the data reported by Greece… this could lead to a revision for the year 2009 of the order of 0.3 to 0.5 percentage points of GDP for the deficit and 5 to 7 percentage points of GDP for the debt.”
The news hit the euro and stock markets, amid new worries that Greece might default on its debts. Greece’s benchmark 10-year bond yield soared to 8.49%, the highest since the introduction of the single currency in 1998 and more than twice the comparable German rate. The euro fell for a fifth day against the pound, dropping 0.61% to close at GBP 0.86334. Against the US dollar the single currency posted a fourth day of losses, falling 0.75% to close at EUR 1.32854.
Greece is currently negotiating the details of an emergency joint rescue package from the euro zone and International Monetary Fund.
The Greek government has said it wants to reduce the deficit to 5.6% of GDP in 2011 and 2.8% of GDP in 2012. But spending cutbacks measures being introduced by Athens to restore its finances are being resisted. Yesterday tens of thousands of Greek civil servants staged a 24-hour strike in protest against the austerity measures.
The Bank of Canada yesterday continued to keep financial markets guessing about when policy rate increases may begin, but said their time has come. Likely dates are June 1st or July 20th for the first of a series of increases.
Canada’s dollar traded near a 22- month high against its US counterpart as the central bank signaled an increase in interest rates and reiterated that the need for economic stimulus is fading. The currency hit a high of CAD 0.99606 before dropping back to close just below parity at CAD 1.00061.
The Bank only provided detail in a Monetary Policy Report to outlines given Tuesday when it maintained the year-long rock-bottom overnight rate target at 0.25%. It said the need for such extraordinary stimulus is over and it is time “to begin to lessen the degree of monetary stimulus.” However, the timing and size of rate increases “will depend on the outlook for economic activity and inflation.” And here, on economic activity and recovery from recession, the Report is laced through with cautions.
Inflation is expected to remain anchored at around the 2% target through 2012, with the Bank evidently little concerned about it. Looking at growth, though there was a strong 5.8% recovery in the first quarter of this year, and 3.8% expected GDP increase in the present quarter, this recovery is “front-loaded,” the Bank says. Growth will diminish to 3.5% in the second half and more rapidly in 2011, down to just 1.9% in the two final quarters of next year.
From now on, Canadian growth “will revert more quickly to trend,” in the Bank’s assessment. From the present second quarter this year through all of 2011, growth slows because policy stimulus measures had brought forward “considerably more expenditures” late last year and early this year than expected. Moreover, the Bank expects “a somewhat weaker outlook for US economic growth starting in the second half of 2010.” Another drag is “the higher assumed level for the Canadian dollar.”
The Bank bases its assessments in part on a Canadian dollar averaging 99 cents against the US dollar over its projection period (through 2012). The Canadian dollar was at parity with the US dollar Wednesday.
On an average annual basis, Canadian GDP is expected by the Bank to grow by 3.7% this year, against just 2.9% expected in the January Monetary Policy Report. Then, growth slows gradually to 3.1% in 2011 (3.5% expected last January), and down to 1.9% in 2012.
Written by Finexo.com
