One Minute Macro Update - The Long Overdue Peripheral Meltdown Resumes
Periphery Yields: Moving On Up
U.S.: Markets on the rebound this morning as oil markets calmed on U.S. President Barack Obama and U.K. PM David Cameron’s call for Qaddafi to step down to end the civilian violence. Today’s release of mortgage applications saw a growth of 15.5% last week, coming off of a 6.5% decrease prior.
Europe: Two top ECB officials indicated yesterday that interest rate increases might come sooner than ECB Trichet alluded to last week. Given Europe’s slow economic recovery, opinions are mixed on the matter. Recession-predicting economist Nouriel Roubini told reporters yesterday that if oil reaches $140/barrel, a level seen in the summer of 2008, the rate action will cause many advanced economies to slip into double-dip recession. Recent turmoil in the Middle East has sent oil prices nearing $120/barrel. Greek, Spanish, and Portuguese yields rose again yesterday as Friday’s EU summit on a new debt crisis solution draws closer. Portugal sold €1.0B in 2Y bonds at 5.993% v 4.086% prior with b/c 1.6x v 1.9x prior. The SOVXWE widened out again to 183bp from 177bp a week ago with Spain underperforming as it is most vulnerable to rate hikes. We feel that the longer the periphery/core support process drags out, the more rating agencies will be forced to look at interest rate burdens for periphery countries as being normal moving forward. German industrial production rose 1.8% MoM v 1.7%E. Greek unemployment for December moved up to 14.8% v 14.5%E and 13.9% prior. U.K.’s visible trade balance for January strengthened to -£7.1B v -£8.5B E, its smallest deficit since April of last year. The figures show an improvement over December’s -£9.7B even after considering weather’s impact on exports that month.
Asia: Vietnam’s central bank hiked a key interest rate up to 12 percent for its third increase in three weeks in a continuing effort to tighten a growing deficit and get a hold on lending. China will report its trade balance tomorrow with market estimates at $4.9B v $6.5B prior. A smaller surplus would lighten criticism on the country that the Yuan is undervalued to maintain a competitive edge in export markets. Today will also see the release of Japanese 4Q GDP at -0.3% QoQ v -0.3% prior as well as Australia’s employment rate, estimated to remain unchanged at 5.0% for February.
From Brian Yelvington at Knight Capital
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