One Minute Macro Summary - Earthquake To Be At Least ¥2.75T Hit To Japanese GDP (For Now)

Overview: Markets in positive territory this morning, despite mounting debt stress in Europe.

U.S.: MBA mortgage applications grew 2.7% v -0.7% the week prior. The increase exhibits a different trend than this week’s disappointing housing data which included a fall in February existing home sales and a -0.3% drop in the house price index v -0.2%E in January. More housing data to come today with new home sales at 290KE v 284K prior. The U.S. and its allies continue military efforts aimed at Libyan leader Muammar Qaddafi. The coalition is in the midst of deciding if a NATO group will take over command from current U.S. control.

Europe: In a 6-3 vote among its voting leaders, the Bank of England kept interest rates at current levels to wait to evaluate the effects of higher oil prices. An 8-1 vote also kept the QE program unchanged at £200B. Reports this morning put low probability on Ireland being able to cut interest rates on its bailout loans at this week’s EU summit that begins tomorrow amid further threats of senior bondholder haircuts. Meanwhile, the Euro has weakened this week in the lead up to the summit, as confidence in the meeting’s ability to resolve the debt crisis wavers. The Portuguese government will vote on proposed fiscal austerity measures today. Given the country’s political divide, approval appears unlikely, which would further stress the debt-strapped nation and lead it quickly to an EFSF tap. The prior talk of easily expanding the EFSF and providing for a steady ESM in 2013 appears full of flaws upon yesterday’s further review – with ratings, capital versus guarantees, and bond purchase mechanisms all large concerns. It now appears EFSF expansion will take until the end of June to be resolved according to news reports, which will not bode well for those issuers trying to play hardball with the group of payers. SOVXWE traded 10bp wider yesterday and traded into 174bp this AM. The EFSF news pushed the index wider to 177bp. Swedish consumer confidence sank to 19.0 v 20.3E and Danish consumer confidence fell to -0.8 v -2.0E; both represent declines from the month prior.

Asia: Japan’s government announced yesterday that damage due to the recent earthquake will reach $185B to $308B, an amount equivalent to the damage of almost four Hurricane Katrinas. That makes it the most expensive natural disaster the world has ever seen. The government also indicated that the earthquake will take -¥2.75T hit on GDP for the fiscal year that begins on April 1. An official from the PBOC told reporters that inflation will be high in the first half of the year (about 5%), but will slow in the second half, adding that interest rates are at a “comfortable” level. The World Bank also announced today that China’s economy may grow to be twice the size of America’s within the next twenty years. Singapore’s CPI increased 5.0% YoY v 5.4%E and -0.1% MoM v 0.6%E in February. Taiwan’s industrial production in February increased 13.28% YoY v 16.25%E and 17.19% prior. New Zealand’s 4Q10 GDP will be released later today and estimated at +0.7% YoY v 1.5% prior. Note that these figures will take a dramatic shift going forward due to New Zealand’s devastating earthquake earlier this year.

From Brian Yelvington of Knight Capital


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