Thursday, 13 June 2013

Europe reports positive data but anxieities rising in emerging markets

Economic data on Wednesday were relatively positive.

In Europe, industrial production increased 0.4 percent in April in the euro area and 0.3 percent in the European Union as a whole. It was the third consecutive monthly increase for both regions.

In the UK, the job market improved in May. The number of people claiming jobless benefit dropped by 8,600 last month, its seventh consecutive fall.

However, the World Bank announced on Wednesday that it had lowered it growth forecast for the global economy in 2013. It now sees the global economy growing 2.2 percent this year, down from a January estimate of 2.4 percent. The euro area in particular saw a sharp downward revision, with its economy now expected to contract by 0.6 percent compared with the prior estimate of a 0.1 percent contraction.

In financial markets, stocks continued to fall on Wednesday. The S&P 500 fell 0.8 percent, the STOXX Europe 600 fell 0.4 percent and the Nikkei 225 fell 0.2 percent.

US Treasuries also fell on Wednesday, pushing yields towards 14-month highs, after a US government sale of $21 billion of 10-year notes drew the weakest demand since August. The 10-year yield rose four basis points to 2.23 percent while the 30-year yield rose six basis points to 3.37 percent.

Bloomberg reports that anxieties are also surging in emerging markets.

The biggest drop in perceived creditworthiness for emerging-market borrowers since the credit crisis is deepening as speculation intensifies that central banks will scale back record stimulus.

Prices on the Markit CDX Emerging Markets index, a credit-default swaps benchmark for debtor nations from Latin America to the Middle East and Asia, have tumbled 4 cents in the two weeks through yesterday to 107 cents on the dollar. The decline is the biggest since the failure of Lehman Brothers Holdings Inc. reverberated across financial markets and caused the index to plunge 6.7 cents in the period ended Nov. 18, 2008.

Reuters adds that corporate bonds in emerging markets could be headed for a surge in defaults. The potential for financial turmoil in emerging markets could in turn give the Federal Reserve a “fresh headache” in deciding when to exit from quantitative easing.

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