- IMF lowers its growth forecasts for most major economies.
- Focus on Chinese local authority debt intensifies.
- Risky assets bounced back yesterday, driven by earnings and soft Fed talk.
- Today's calendar is packed and includes the Riksbank rate decision.
IMF lowers growth forecasts
. In its semi-annual global economic forecasts published yesterday (link), the IMF lowered its estimate for global growth in 2013 to 3.3% (previously 3.5%). Overall, the forecast revisions contained small downward adjustments to the advanced economies, reflecting the recent softness in economic data. Japan marked an exception, however, as the growth forecast was raised due to the country’s new aggressive monetary easing. The revisions were largely as expected and the new forecasts are broadly in line with Danske Bank’s view (see Global Scenarios).
Focus On Chinese Local Authority Debt
In an unusual step a senior Chinese auditor has warned that Chinese local governments’ debts are ‘out of control’ (see CNN). Local governments are prohibited from raising debt but have used special purpose vehicles to circumvent the rules. The warning follows a sovereign downgrade last week by rating agency Fitch.
Risky Assets Bounce Back
After heavy losses on Monday sentiment recovered in the U.S. session yesterday. The turn-around in sentiment was catalysed by strong earnings from large U.S. corporates (Coca-Cola, Johnson & Johnson) as well as overall soft comments from FOMC members favouring continued QE after the March slowdown (see Reuters for a wrap-up). Economic data were mixed. In the morning a downbeat ZEW reading set the tone for the European session, while US data released in the afternoon were inconclusive. Housing starts were strong, though driven by the volatile multi-family component, while permits were on the weak side. Although industrial production beat expectations, the upside seemed weather-related being driven by utilities.
Fixed Income Markets Saw U.S. Treasuries Trade Back, EU Peripherals Perform
U.S. Treasuries gave back some of Monday’s gains yesterday on the back of the strong sentiment. EU peripheral debt markets posted decent performance yesterday, with particularly Portugal tightening versus Germany (16bp in the 10-yr. segment), followed by Italy (6bp) and Ireland (5bp). Irish yields rose slightly towards the end of the session after trade unions rejected a package of public sector pay cuts (see Financial Times). The wage cuts were part of the fiscal adjustment programme that the government is pursuing in order to meet the targets agreed with the Troika of international lenders.
On Commodity Markets
The price of gold has recovered slightly, rising 0.6% following a 9% plunge Monday. On the FX market, the yen weakening trend has resumed, with USD/JPY rising above 98. EUR/USD rose close to 1.32, underpinned by optimistic comments from ECB’s Draghi, though there was little news in his remarks.
To Read the Entire Report Please Click on the pdf File Below.