Japan Machine Orders UP
Bookings (JNMOCHNG) increased 4.8 percent, the most since November, after rising 3.4 percent the previous month, a Cabinet Office report showed in Tokyo today. The median estimate of 28 economists surveyed by Bloomberg News was for a 0.8 percent decline….
Spanish Industrial output shrinks for sixth straight month
(Reuters) – Spain’s industrial output shrank for the sixth straight month in February and at the second fastest pace in more than two years, fuelling concerns over its stuttering economy which have prompted debt premiums to jump.
Banks and other private sector creditors are demanding ever higher risk premiums to borrow to Spain as the government struggles to generate growth while implementing deep spending cuts to tame one of the highest public deficits in the euro zone.
Spanish calendar-adjusted industrial output fell 5.1 percent year-on-year in February, data from the National Statistics Institute showed on Wednesday, just off forecasts for a 5.0 percent drop and following a 4.3 percent drop in January.
“Expecting a turnaround before the second half is unrealistic. It’s a cyclical downturn and industrial production is a reflection of that. They’re probably going to be seeing recession this year and next,” economist at Citi, Guillaume Menuet said.
A survey of purchasing managers last week also showed Spanish factory output shrank at the fastest rate since December in March, and the government says Spain slipped in to recession in the first quarter.
Officials expect the economy to shrink 1.7 percent this year while Citi forecasts a 2.7 percent drop in activity.
To meet the Brussels-set public deficit goal of 3 percent of gross domestic product by 2013, Madrid has announced 27 billion euros ($35.32 billion) in savings by raising taxes and slashing government spending.
Spain’s Economy Minister Luis de Guindos said this week the government is are considering making 10 billion euros of savings by reforming the state healthcare and education sectors, a move that will anger many who consider the welfare state as sacred.
Many Spaniards are resigned to the belt-tightening measures, and protests has been mostly muted, though after four years of economic stagnation and 23 percent unemployment, the next two years are likely to test the patience of those worse hit.
Bo Suspended After Wife Suspected in British Man’s Murder
China’s Communist Party moved to show unity after suspending Bo Xilai from the ruling Politburo and declaring his wife a murder suspect, ordering the nation’s more than 80 million party members to back the decision.
China’s central television station read the charges against Gu Kailai, Bo’s wife, every hour on the hour, detailing how she had been arrested on suspicion of murdering British businessman Neil Heywood in Chongqing. A commentary on the front page of today’s People’s Daily (PEODOZ), the party’s mouthpiece, urged cadres to “firmly support the correct decision” to investigate Bohe death of Neil Heywood is a serious criminal case involving the family and close staff of a Party and state leader,” the commentary said. “Bo has seriously violated the Party discipline, causing damage to the cause and the image of the Party and state.”
Bo’s downfall, which comes as China prepares for a once-in- a-decade leadership change this year, is the biggest political upheaval in the country’s top ranks since Communist Party General Secretary Zhao Ziyang was purged in the wake of the 1989 Tiananmen protests. Removal from the Politburo and Central Committee, which would come at a formal party meeting, is often a precursor to prison or detention. Among four other men removed from the Politburo outside regular Communist Party congresses since 1989, two were imprisoned and a third, Zhao, lived out most of the rest of his life confined to his home….
Shadow Banks on Trial as China’s Rich Sister Faces Death
When a Chinese court sentenced 28- year-old Wu Ying, known as “Rich Sister,” to death for taking $55.7 million from investors without paying them back, it sparked an unexpected firestorm that has drawn in China’s top leadership.
Her crime involved a common, illegal practice in China: raising money from the public with promises to pay back high interest rates. Known as shadow banking, these underground lending and investing networks are estimated to total $1.3 trillion, according to Ren Xianfang, an economist with IHS Global Insight Ltd. (IHS) in Beijing. That’s the size of the 2011 U.S. government deficit…..
Asia Inflation Risk May Check Easing
Asian nations from South Korea to Singapore may refrain from monetary easing this week as rising oil prices add to inflation risks, even as pressure mounts on Japan to add stimulus and China grapples with slowing expansion.
Indonesia (IDBIRATE) will keep interest rates unchanged for a second month tomorrow, and South Korea and Pakistan will follow a day later, according to Bloomberg News surveys. Singapore, which uses its exchange rate to manage inflation, is forecast by economists to maintain its policy stance on April 13, when the government is predicted to report a rebound in growth.
Crude oil has risen 18 percent in the past six months, forcing Asian governments to raise fuel prices and limiting policy options for central banks in the world’s fastest growing region. Developing Asia can refrain from further monetary and fiscal stimulus because expansion will remain robust, while spikes in energy costs can revive the threat of inflation, the Asian Development Bank said in a report today.
“Economic momentum is steadily improving, so there is no scope for further monetary accommodation,” said Wai Ho Leong, a senior regional economist at Barclays Capital in Singapore. “The focus of policy is to anchor inflation expectations.”
The MSCI Asia Pacific Index (MXAP) has risen about 8 percent this year on signs the U.S. is recovering and as Europe’s turmoil abated with Greece’s second bailout package. The Bank of Japan yesterday resisted calls from lawmakers to expand monetary easing and counter deflation….
Germany Grows Robust from Sick Man With Demand at Home
Germany’s economic expansion is increasingly home-grown.
Unemployment at a two-decade low, wages accelerating out of years of restraint and falling borrowing costs are spurring consumers in Europe’s linchpin economy to spend more. Showcased by rising property prices, that’s at odds with the rest of the euro area, where austerity and the bursting of debt-fueled asset bubbles are forcing households to cut back.
Economists from HSBC Holdings Plc to BNP Paribas SA are responding by raising forecasts for German growth and declaring that domestic demand is emerging as a rival to exports as the economy’s driver. The rejuvenation may help strengthen and rebalance the rest of the euro area, even as it makes it tougher for the European Central Bank to set a one-size-fits-all monetary policy.
“Ten years ago, Germany was the ‘sick man of Europe,’” said Holger Schmieding, London-based chief economist at Berenberg Bank, Germany’s oldest bank. Now, “Germany will enjoy a golden decade of more growth and employment with a healthy fiscal balance.”
Consumer spending could grow more than 2 percent next year, eclipsing the annual average of just 0.75 percent since 1999, according to David Owen, chief European financial economist at Jefferies International Ltd. in London. Export growth averaged about 2.25 percent a year and economic expansion 1.35 percent since 1999, he estimates….
Coeure Triggers Bets ECB Will Restart Bond Purchases for Spain
European Central Bank Executive Board member Benoit Coeure triggered speculation that the bank will revive its bond-purchase program to lower Spain’s borrowing costs as the region’s debt crisis threatens to boil over again.
Spanish “market conditions are not justified,” Coeure, who heads the ECB’s market operations division, said at an event in Paris today. “Will the ECB intervene? We have an instrument, the securities markets program, which hasn’t been used recently but it still exists.”
The euro rose and Spanish bond yields declined as Coeure’s comments reassured investors that the ECB will act again if needed to stem the crisis. With Spain’s three-month-old government struggling to reduce the budget deficit and crack down on overspending by regional administrations, borrowing costs have surged, nearing the levels that precipitated bailouts for Greece, Portugal and Ireland.
“We expect a very significant intensification of the euro- area debt crisis to materialize this quarter as the market refocuses on the fundamentals and the fiscal challenges of each country,” said Silvio Peruzzo, an economist at Royal Bank of Scotland Plc in London. “The ECB should be preparing itself” for “the return of significant financial market tensions.”
The yield on Spanish 10-year bonds, which climbed to a four-month high of 5.99 percent this morning, slid to 5.82 percent after Coeure spoke. The euro gained more than a quarter of a cent to $1.3134 at 2 p.m. in Frankfurt and European stocks rose, with the Stoxx Europe 600 Index (SXXP) up 1 percent.
Spain’s 10-year borrowing costs have jumped more than 1 percentage point since March 2, when Prime Minister Mariano Rajoy said the country will miss a 2012 deficit goal approved by the European Union. The euro area’s fourth largest economy is in recession and unemployment is nearing 24 percent.
Rajoy said today that Spain won’t need a bailout and will regain investors’ trust with the deepest austerity measures in three decades, including spending cuts and tax increases.
“They lend to you if they are confident you will pay it back,” he told his governing People’s Party in Madrid. “There are countries near to us that couldn’t and they are in the situation everyone knows about. This is not the case for Spain.”
Coeure said it will take time for the government’s “very strong deficit measures” to take effect and praised the “enormous” political will to implement reforms.
Chorus of Optimism
He joined a chorus of positive comments about Spain from policy makers around Europe today.
The Spanish government has undertaken a “comprehensive reform” of its finances, labor market and banking system, German Finance Ministry spokesman Johannes Blankenheim said. French government spokeswoman Valerie Pecresse said market concern over Spain is “excessive.”
Spain may “aggressively” tap support from the ECB instead of seeking a bailout, said Bill O’Neill, chief investment officer for Europe, Middle East and Africa at Merrill Lynch Wealth Management in London. The ECB may revive its bond- purchase program around Spain, he added.
The ECB “should be a little more aggressive” with its bond purchases, Banco Santander SA Chief Executive Officer Alfredo Saenz said yesterday.
Dormant Bond Program
The ECB hasn’t purchased any government bonds for four weeks after its injection of more than 1 trillion euros ($1.3 trillion) of three-year loans into the banking system helped debt markets rally.
Some ECB policy makers oppose the bond program, which was started in May 2010 to stem the spread of the sovereign debt crisis, arguing it blurs the line between fiscal and monetary policy.
“It’s interesting that Coeure does not mention another three-year tender, but sees a possible restart of the SMP,” said Thomas Costerg, an economist at Standard Chartered Bank in London. “I think reviving the peripheral bond-buying program could face some resistance, especially by northern European governors who see it as too ‘political’ an instrument.”
Still, the loans don’t have the ability to target individual market segments in the same way the bond program does, said Michala Marcussen, global chief economist at Societe Generale in Paris.
“If you’re looking to target specific dislocation, and the Spanish government is making all the right noises, that’s the most efficient tool in the box,” she said.
Investors Flee Spanish Banks
Rajoy Says Spain Future at Stake
Prime Minister Mariano Rajoy said Spain’s future is on the line in its battle to tame surging bond yields, as the head of the nation’s second-largest region proposed handing back powers to the government to cut costs.
With Spanish bonds trading closer to levels that prompted Greece, Ireland and Portugal to seek European bailouts, Rajoy will address lawmakers of his People’s Party today to explain the deepest budget cuts in three decades. The prime minister will speak at 1 p.m. in Madrid.
Without a doubt, a good part of Spain’s future is at stake,” Rajoy told senators yesterday, as he urged regional governments to contribute to spending cuts. “The problem is that the markets can lend or decide not to lend.”
Rajoy has stepped up his rhetoric in the past week as he seeks to persuade Spaniards to accept spending reductions and tax increases as a less painful alternative to a bailout. His three-month-old government is struggling to convince investors it can reduce the deficit by a third this year and crack down on overspending by regional administrations.
As Spain’s regions suffer from a slump in tax revenue while most are locked out of capital markets, Esperanza Aguirre, the president of the Madrid region, yesterday proposed handing back responsibilities such as health and education to the central government. Aguirre, once a potential rival to Rajoy for the PP leadership, said the move would save 48 billion euros ($63 billion) by avoiding overlap.
The 10-year bond yield rose as high as 6.02 percent today, the most since December, before easing to 5.84 percent as of 11:50 a.m. in Madrid. That compares with the 7 percent level that pushed Greece, Ireland and Portugal to seek bailouts.
Yields fell after European Central Bank Executive Board member Benoit Coeure signalled the bank could revive its program of sovereign bond purchases for Spain. He praised the Spanish government for taking “very strong deficit measures.”
“Will the ECB intervene? We have an instrument, the securities markets program, which hasn’t been used recently but it still exists,” he said in a speech in Paris today.
Spain’s 10-year borrowing costs have jumped more than one percentage point since March 2, when Rajoy said that Spain would miss a deficit goal approved by the European Union. Euro-region finance ministers on March 12 settled on a new target of 5.3 percent of gross domestic product, compared with 8.5 percent last year.
“The idea that Spain is going to be able to avoid a bailout is going to be tested over the next few months,” said Harvinder Sian, a senior interest rate strategist at Royal Bank of Scotland Group Plc in London. “We think the market will smash back to the highest levels we’ve seen and go beyond that.”…..