Overview: Markets mostly negative this morning in anticipation of early results from Ireland’s bank stress tests and an announcement from Portugal’s president.
U.S.: Compelled by lawsuits emerging from the Freedom of Information Act, today the Fed will release details about its discount window lending activities during the recent financial crisis. The Fed had resisted requests up until now as it believed that a public announcement would discourage borrowing when truly needed. The Fed announced yesterday that it will auction $5B in 28 day term deposits next Monday in an attempt to reverse the liquidity injected into the economy during the 2008 crisis. More labor market data due out today in a preview of Friday’s payroll and unemployment figures with Initial Jobless Claims this morning estimated at 380KE v 382Kin the week prior and Continuing Claims at 3705KE v 3721K prior. Look for a strong print as yesterday’s ADP payroll data showed a fourth straight month of strong results despite missing lofty expectations. Markets expect business data to be softer than last month’s strong releases with Chicago PMI at 69.6E v 71.2 prior and Factory Orders at +0.5%E MoM v 3.1% prior.
Europe: Early Irish bank stress test results began leaking yesterday afternoon, but will formally be announced later today. The Irish government will need to take up the slack in banks’ capital needs, which may translate to further Euro zone aid or bondholder hits. ECB’s Weber reportedly said that creditors may be sharing the burden on bank losses. The Irish government is also contemplating a merger between two of its biggest banks as a restructuring tool. Portuguese President Cavaco will meet with the Council of the State later this morning. The topic of the meeting is widely expected to be an announcement of a snap election to fill in the recently abandoned prime minister post. Meanwhile, Portuguese 2Y yield surpassed 10Y yield for the first time since 2006, and it is becoming clear that the country does not have the funds necessary to meet its April and June debt maturities. Portugal’s 2010 budget deficit was adjusted up to 8.6% from an expected 7.3% target. This puts the debt/GDP ratio at 92.4% in 2010 and the government expects a rise to 97.3% in 2011. Moody’s announced that the ESM does not go far enough and further sovereign credit downgrades on European nations are possible. The Euro zone CPI estimate for March saw a 2.6% MoM increase v 2.4%E; this violates the ECB current 2.0% limit. Italian inflation surpassed estimates with preliminary HICP for March up 2.0% MoM v 1.6%E and 2.6% YoY v +2.2%E while PPI increased 0.6% MoM v 0.8%E. French Producer Prices increased 0.8% MoM v 0.4%E and 6.3% YoY v 6.2%E. U.K. Nationwide House Prices grew 0.5% v flat estimates. On a YoY basis, prices beat expectations with +0.1% v -0.6%E. However, recent housing sector data paints a contrasting picture. German unemployment lowered slightly to 7.1% v 7.3% prior with the number of unemployed individuals declining by 55K v -25KE. This is the lowest unemployment level in 21 years. German retail sales unexpectedly sank 0.3% MoM v +0.4%E. Danish unemployment fell to 4.0% v 4.2% prior.
Asia: The latest nuclear news out of Japan highlights the possibility of chain reactions from the Fukushima power plant. Australia’s closely watched housing sector saw building approvals unexpectedly plummet 7.4% MoM v +4.0%E and -21.8% YoY v -12.8%E in February. The country saw a 0.5% MoM increase in retail sales v +0.4% prior while private sector credit expanded +0.5%MoM v 0.3%E, as compared to last month’s +0.3%. The National Bank of New Zealand released national business confidence figures for March at -8.7 v 34.5 prior as the earthquake rebuild weighs on the economy’s mind. South Korea’s Leading Index rose 2.4% YoY v 3.0% prior as industrial production shrank -2.3% MoM v -2.0%E. Looking ahead, the Bank of Korea’s business survey for April fell to 95 v 96 prior for manufacturing and 83 v 85 prior for non-manufacturing activities. Japanese housing starts in February picked up 10.1% YoY v 7.4% prior. The Nomura PMI showed Japan’s first post-earthquake manufacturing figures with a sharp drop to 46.4 v 52.9 prior, the first contraction since last October (a score of 50 indicates no growth). Thailand’s current account surplus increased to $3,823MM in February v $1,090MM prior. Taiwan’s central bank fulfilled market expectations and increased the benchmark interest rate to 1.750%, up from 1.625% previously, in a move to combat inflation instead of guarding itself from Japanese earthquake repercussions. Hong Kong’s retail sales rose 8.6% YoY by value v 18.5%E, slightly muted from last month’s +28.2%.
From Brian Yelvington of Knight Capital