One Minute Macro Update - European Inflation Taking Hold

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U.S.: The debate over the future of QE2 continues, this time with
dovish comments out of NY Fed President Dudley on Friday. Economic
releases are light today after Friday’s positive labor data. Look ahead
to inflation numbers later in the week with PPI on Thursday and CPI on
Friday. We are now experiencing a slew of firms downgrading growth
forecasts in FY2011, which should put even more pressure on the job
market to drive Fed policy
.

Europe: The IMF has officially denied any reports that the organization had pushed for a haircut on Greek sovereign debt. Euro zone PPI increased 0.8% MoM v a revised down 1.3% prior and 6.6% YoY v a revised down 5.9% prior. Food and energy prices led the increase, but the rise was seen across most goods. These new inflation rises set the stage for Thursday’s ECB Council Meeting which is widely believed to result in an interest rate hike for the region. Mounting debt pressures in Portugal, Ireland, and Greece, make the proposed rate increase highly contested. EURIBOR-OIS has risen, moving up 22.8bp v 19.0bp last week. The recent rise in the EURIBOR also does not help matters in Spain, where the majority of mortgages are tied to the rate. Meanwhile, Spain’s PM announced on Saturday that he will not seek a third term next year, making budget cutting efforts a much more challenging task given his party’s declining popularity. Spanish unemployment in March grew by 34K claims v 68.3K prior. Consumer confidence in the country followed suit, falling to 68.3 v 73.4 prior. U.K. PMI construction fell only slightly to 56.4 v 54.8E and 56.5 prior.

MENA: Libya’s conflict moved to negotiations as rebels called for a cease fire on Friday. Reports out yesterday indicate that two of the Libyan leader Qaddafi’s sons are calling for an end to the conflict, proposing a transition to democracy that would push their father out of power.

Asia: New Zealand’s budget deficit was narrower than expected when excluding the costs of the country’s February 22nd earthquake, according to a report released by the country’s treasury. A breakdown of Japan’s Tankan manufacturing survey released this morning showed that expectations for the sector are negative with confidence dropping to -2 this June from 6 in March. The Japanese government approved a plan to allow the Fukushima power plant to release water with low levels of radiation into the sea. The power plant has run out of space to store the contaminated water used to cool the reactor. Australia saw a rise in inflation in March with the TD Securities Inflation Gauge rising rose 0.6% MoM v 0.2% prior.

From Brian Yelvington of Knight Capital