BoJ leaves rates unchanged

The Bank of Japan left interest rates unchanged today. Bloomberg reports:

The Bank of Japan kept interest rates near zero and said it will examine ways to help strengthen the economic recovery.

Governor Masaaki Shirakawa “has instructed the staff to examine and report on another occasion, on possible ways to support private financial institutions in terms of fund provisioning with a view to strengthening the foundations for economic growth,” the central bank said in a statement today.

Economic reports released in Japan today mostly showed that the economy is continuing to grow.

Consumer prices excluding fresh food fell 1.2 percent in March from a year earlier, the 13th straight decline, the statistics bureau said today.

Other reports showed household spending rose 4.4 percent, the biggest advance since May 2004, and wages advanced for the first time in 22 months. Industrial production climbed 0.3 percent in March from February, when output declined for the first time in a year...

Job prospects improved in March, with the ratio of positions available to applicants climbing to 0.49, a Labor Ministry report showed today. The unemployment rate unexpectedly climbed to 5 percent as college graduates entered the labor market. The median estimate of economists was for the rate to stay at 4.9 percent.

Another report from Japan today showed that the Nomura/JMMA manufacturing PMI rose to 53.5 in April from 52.4 in March.

Thursday's economic reports from Europe and the US had also been mostly positive.

In Europe, Bloomberg reports an improvement in economic confidence.

European confidence in the economic outlook improved to the highest in more than two years and German unemployment plunged amid signs the euro-area recovery is strengthening even as Greece’s fiscal crisis spreads across the region.

An index of executive and consumer sentiment in the 16 euro nations rose to 100.6 in April from a revised 97.9 in March, the European Commission in Brussels said today. That exceeded the 99.4 median estimate of 24 economists in a Bloomberg News survey. In Germany, the region’s largest economy, unemployment fell 68,000 to 3.29 million in April, almost seven times more than economists had forecast.

In the US, Reuters reports a fall in jobless claims.

The number of U.S. workers submitting new claims for unemployment benefits fell slightly last week, implying only a gradual labor market improvement even as the economic recovery broadens out...

Initial claims for state unemployment benefits fell 11,000 to a seasonally adjusted 448,000, the Labor Department said. That was slightly below market expectations claims would drop to 445,000...

Separately, the Chicago Federal Reserve national activity index rose in March, but still indicated below-trend growth.

S&P cuts Spain's credit rating

Europe's sovereign debt problem continues to spread. From Bloomberg on Wednesday:

Spain had its credit rating cut one step by Standard & Poor’s to AA, putting it on a par with Slovenia, as contagion from Greece’s debt crisis spreads through the euro region.

S&P said in a statement today that its outlook on Spain is negative, indicating possible further downgrade if the “budgetary position underperforms to a greater extent than we currently anticipate.” Spain, which has the euro-region’s third- largest deficit after Ireland and Greece, was last cut by S&P in January 2009.

The risk premium investors demand to hold Spanish bonds surged to the highest in more than a year today and the price of insuring Spanish bonds against default reached a record as concerns about Greece’s ability to pay its debt spilled over into Spanish and Portuguese markets.

However, investors took comfort from the continued benign Fed stance on monetary policy. Again from Bloomberg:

Federal Reserve officials restated their intention to keep the benchmark interest rate near zero for an “extended period” and saw signs of life in the job market.

“The labor market is beginning to improve,” the Federal Open Market Committee said in a statement today in Washington, after last month saying it was “stabilizing.” Officials also said growth in household spending has “picked up recently.”

MarketWatch reports the market reaction to the events of the day.

U.S. stocks on Wednesday made a moderate rebound after stronger earnings and a Federal Reserve commitment to keep rates low offset investor unease over Southern Europe's sovereign debt problems.

The Dow Jones Industrial Average ended up 53.28 points, or 0.5%, to 11,045.27, led by a 2.5% rise in J.P. Morgan Chase Co. shares and a 1.8% gain in Bank of America Corp...

Gold futures extended their winning streak to a fourth-straight day, adding $9.60, or 0.8%, to settle at $1,171.80 an ounce on Comex. See Metals Stocks on gold prices.

Oil futures ended 78 cents higher, or 1%, at $83.22 a barrel. See Futures Movers on oil prices.

Markets overwhelmed by credit rating downgrades

US economic data on Tuesday were positive. Bloomberg reports:

Consumers in the U.S. turned more optimistic in April as the growing economy raised hopes jobs will become available.

The Conference Board’s confidence index rose to 57.9, exceeding all forecasts of economists surveyed by Bloomberg News and the highest level since Lehman Brothers Inc. collapsed in September 2008, according to data from the New York-based private research group. The measure averaged 97 during the last expansion...

Another report showed home prices climbed less than forecast, a sign the housing recovery will take time to develop. The S&P/Case-Shiller index of property values in 20 cities rose 0.6 percent in February from the same month last year. The median forecast of economists surveyed by Bloomberg projected a 1.3 percent advance.

Market sentiment, in contrast, was very negative. Again from Bloomberg:

Stocks tumbled, with the Standard & Poor’s 500 Index falling the most since February, and the dollar and Treasuries rose as credit-rating downgrades of Greece and Portugal fueled concern debt-laden nations are moving closer to default. Greek, Portuguese and Irish bonds sank.

The S&P 500 lost 2.3 percent at 4 p.m. in New York. The Stoxx Europe 600 Index slid 3.1 percent, the most since November, and the euro dropped below $1.32 for the first time since April 2009. Yields on 10-year Treasuries tumbled 12 basis points to 3.68 percent. Greek two-year note yields jumped to a record of almost 19 percent and Portugal’s jumped to 5.7 percent as credit-default swaps on Europe debt surged to the highest ever. Oil sank 2.1 percent, while gold rallied 0.7 percent...

S&P lowered Greece’s credit rating to BB+ from BBB+ and warned that bondholders could recover as little as 30 percent of their initial investment if the country restructures its debt. The downgraded marked the first time a euro member has lost investment grade rating since the currency’s 1999 debut. S&P also reduced Portugal by two steps to A- from A+.

Greek debt concerns persist, US reform debate blocked

Despite the rescue efforts of the European Union and the IMF, Greece's debt problem remains a concern. Reuters reports:

Germany said on Monday it could offer aid for Greece within days if it agreed to painful new austerity measures, but rescue jitters pushed the cost of insuring against a Greek debt default to a record high...

Greece's borrowing costs rose to a 12-year peak on investors' fears that assistance would come too late to avert the euro zone's first sovereign debt default.

However, banks in the US won a reprieve on Monday. Again from Reuters:

The most sweeping overhaul of U.S. banking rules since the Great Depression stumbled in the Senate on Monday as Republicans united to prevent action on the bill.

The vote gives Republicans leverage to extract more concessions from Democrats on a measure that could ban banks from several lucrative types of trading and subject them to greater oversight.

Needing 60 votes in the 100-seat Senate to begin debate on the bill, Democrats fell three votes short.

The setback is not likely to be permanent. Lawmakers in both parties said they are close to agreement and the Senate could take up the bill later this week.

US economic revival continues

Friday's economic reports, on balance, support the view that the United States economic recovery remains on track.

The Economic Cycle Research Institute reported that its US weekly leading index rose to 133.0 for the week ended 16 April, the highest level in almost two years, from 131.3 the week before. The index's annualised growth rate fell to 12.5 percent from 12.6 percent a week earlier.

Despite the dip in the growth rate of the index, the ECRI's managing director Lakshman Achuthan said that "the economic revival will continue in the months ahead".

The Commerce Department reported that new home sales surged 26.9 percent in March to an annual pace of 411,000, rebounding from the record low of 324,000 in February. While the jump looks impressive, it was mostly attributed to a rush to qualify for the government's tax credit for first-time homebuyers as well as improved weather. The improvement in sales is unlikely to be sustainable beyond the next few months.

Nevertheless, looking through the distortions in monthly sales data created by the tax credit, it does look like the housing market has probably stabilised.

The Commerce Department's report on durable goods orders were mixed. Total orders fell 1.3 percent in March. The decline was mostly due to a 67-percent plunge in demand for commercial aircraft.

The underlying trend in durable goods orders is probably still positive though as orders excluding transportation rose 2.8 percent.

The accompanying chart shows that the outlook for the economy is positive. With new home sales no longer a drag on the economy and durable goods orders showing a positive trend, there is little risk of a return to recession in the near future. Note that the chart assumes that the last recession ended at the end of the second quarter of 2009.

Positive economic data for the US and Europe

The data on the US economy on Friday were mostly positive. Bloomberg reports:

Sales of new homes surged 27 percent in March and orders for most durable goods climbed, indicating the U.S. economy sped up heading into the second quarter.

The gain in new-home sales was the biggest in 47 years as buyers rushed to qualify for a government tax credit and the weather improved, a Commerce Department report showed. Bookings for goods meant to last at least three years, excluding cars and aircraft, climbed 2.8 percent...

Total orders unexpectedly dropped 1.3 percent, depressed by a 67 percent plunge in demand for commercial aircraft.

Industrial orders in Europe were also up in February. Bloomberg reports:

European industrial orders rose more than economists forecast in February, led by demand for intermediate goods such as car engines.

Orders to industrial companies in the 16-nation euro area increased 1.5 percent from January, when they decreased 1.6 percent, the European Union’s statistics office in Luxembourg said today. Economists forecast an increase of 1 percent, according to the median of 20 estimates in a Bloomberg News survey. From a year earlier, February industrial orders jumped 12.2 percent.

Meanwhile, German business confidence rose in April. Again from Bloomberg:

German business confidence rose more than economists forecast to a two-year high in April as the global economic recovery boosted export demand and warmer weather allowed workers back onto construction sites.

The Ifo institute in Munich said its business climate index, based on a survey of 7,000 executives, jumped to 101.6 from 98.2 in March. That’s the highest reading since May 2008. Economists expected a gain to 98.7, according to the median of 37 forecasts in a Bloomberg News survey.

Growth in the UK was somewhat disappointing though. Reuters reports:

The economic recovery lost ground in the first three months of this year as the harshest winter in three decades hit retailers and industry, official data showed on Friday...

The Office for National Statistics said GDP increased by 0.2 percent in the quarter, half the 0.4 percent rate forecast by analysts who had expected growth to continue at the same rate as in the last three months of 2009.

Despite the improving global economy, Greece has been forced into requesting aid on its debt. From Reuters:

Debt-stricken Greece appealed to its European partners and the IMF for emergency loans on Friday, yielding to overwhelming market pressure to start the first financial rescue of a member of the euro zone.

Prime Minister George Papandreou asked to tap the 45 billion euro ($60.5 billion) package after investors feared a default and pushed borrowing costs to record levels, undermining Athens' efforts to cut its 300 billion euro debt pile.

US existing home sales rise in March

Bloomberg reports the US economic data released on Thursday.

Sales of U.S. previously owned homes rose in March for the first time in four months as buyers took advantage of a government tax credit and the weather improved.

Purchases climbed 6.8 percent to a 5.35 million annual rate, exceeding the median forecast of economists surveyed by Bloomberg News, data from the National Association of Realtors showed today in Washington...

Initial jobless applications dropped by 24,000 to 456,000 in the week ended April 17, the Labor Department reported. Distortions associated with the Easter holiday contributed to pushing up claims in the prior two weeks, the government said.

The four-week moving average, a less volatile measure, increased to 460,250 from 457,500...

The Labor Department also reported producer prices in March rose 0.7 percent, pushed up by the biggest gain in food costs since 1984. Excluding food and energy, wholesale prices rose 0.1 percent for a second month, signaling inflation is contained...

A report from the Federal Housing Finance Agency in Washington showed prices fell 3.4 percent in February from a year earlier. The data cover sales that conform to government agency standards, meaning the figures do not reflect all transactions.

In the UK, Times Online reports that retail sales were up in March but by less than expected.

Retail sales grew by much less than expected in March, denting hopes that economic growth may have gained momentum in the first three months.

The volume of goods sold on the high street rose 0.4 per cent last month after a 2.5 per cent rise in February, while the closely watched measure of sales excluding fuel edged up only 0.2 per cent.

And UK industry orders improved slightly, according to a Reuters reports:

Factory orders remained weak in April, but firms were their most optimistic in two years about raising output in the coming months, the CBI's monthly Industrial Trends survey showed on Thursday.

The Confederation of British Industry survey's total order book balance improved only slightly this month to -36 from -37 in March, below expectations for a reading of -34.

The euro area released surprisingly buoyant data on Thursday. From Bloomberg:

Europe’s services and manufacturing industries expanded more than economists forecast in April as an export-led recovery prompted companies to step up production.

A composite index based on a survey of euro-area purchasing managers in both industries rose to 57.3 from 55.9 in March, London-based Markit Economics said today. That’s the highest since August 2007. Economists forecast an unchanged reading, the median of 12 estimates in a Bloomberg News survey showed.

And eurozone consumer confidence improved according to another Bloomberg report:

European consumer confidence improved to the highest in almost two years in April, suggesting an export-led recovery may start to feed into household spending.

An index of consumer sentiment in the 16-nation euro region rose to minus 15.2 from a revised minus 17.3 in March, the Brussels-based European Commission said today in an initial estimate. That’s the highest since May 2008...

But Greece's debt problem remains a serious concern. From Reuters:

Greece's budget gap last year was worse than feared, the European Union's statistics office revealed on Thursday, and Moody's Investors Service downgraded its rating of Greek government debt.

The news triggered a fresh slide in the asset prices of Greece and other debt-choked European countries, and increased pressure on Athens to seek billions of euros of emergency loans from the EU and the International Monetary Fund.

IMF raises global growth forecast, Japanese exports rise

The IMF released its latest World Economic Outlook on Wednesday. Reuters reports:

The global economy is recovering from recession more quickly than expected but rescue efforts have worsened public finances, and if not reined in, will lead to a "debt explosion," the IMF said on Wednesday...

Its World Economic Outlook nudged up forecasts for global growth to 4.2 percent this year. But it kept next year's unchanged and officials' stress was on the danger that steps to combat the financial crisis have left no room for maneuver.

Japan's export numbers for March provide further evidence of the impressive recovery so far. Bloomberg reports:

Japan’s exports grew for a fourth month in March, evidence that sustained gains in overseas demand are fueling the recovery as prices slump at home.

Shipments abroad advanced 43.5 percent from a year earlier, the Finance Ministry said today in Tokyo. The median estimate of 14 economists surveyed by Bloomberg News was for a 45.4 percent gain...

Japan posted a trade surplus of 948.9 billion yen ($10.2 billion) in March, narrower than the median prediction for a 1.02 trillion yen gap, the Finance Ministry said. Imports rose 20.7 percent.

The improvement in overseas shipments last month was partly due to a favorable year-on-year comparison. In March 2009, shipments abroad tumbled 45.5 percent as global trade froze in the aftermath of the collapse of Lehman Brothers Holdings Inc. in the previous September.

The value of shipments abroad totaled 6 trillion yen last month, lower than their peak of 7.7 trillion yen in March 2008. From a month earlier, March exports were unchanged on a seasonally adjusted basis, today’s report showed.

India raises interest rates

Yet another Asian central bank tightens monetary policy. AFP/CNA reports:

India's central bank hiked two key short-term interest rates for the second time in a month Tuesday as it tries to rein in "worrisome" inflation that is approaching double digits.

The Reserve Bank of India raised the repo -- the rate at which it lends to commercial banks -- by 25 basis points to 5.25 percent and the reverse repo, the rate it pays to banks for deposits, by the same amount to 3.75 percent...

Wholesale price inflation, India's main cost-of-living measure, which is at 9.90 percent, is well above the bank's 5.5 percent target for the financial year ending March 2011.

Also on Tuesday, Bloomberg reports that Canada may become the first G-7 country to raise interest rates.

The Bank of Canada signaled it may be first in the Group of Seven to increase borrowing costs, joining other countries such as India and Australia, as economic growth accelerates and stokes inflation.

In its decision today to leave the lending rate at a record low 0.25 percent, policy makers dropped a phrase about a “conditional commitment” to keep it unchanged until July unless the inflation outlook shifted. The bank said inflation will be “slightly higher” than its 2 percent target over the next year, and increased its 2010 economic growth forecast to 3.7 percent from 2.9 percent.

A rate hike from Sweden may not come so soon though. Bloomberg reports:

Sweden’s Riksbank kept its benchmark rate at a record low and repeated plans to put off tightening until July at the earliest after the government cut the economic growth outlook and said more stimulus was needed.

The Stockholm-based central bank kept the seven-day repo rate at 0.25 percent and reiterated a forecast that it won’t raise the rate until “summer or early autumn,” according to a press release on its Web site today. The rate decision was expected by all 19 economists surveyed by Bloomberg.

The Bank of England is also unlikely to raise rates soon, but after Tuesday's inflation report, some may be starting to wonder why. From Reuters:

Annual consumer price inflation rose more than expected in March, pushed up by higher petrol prices and air fares, as well as by household gas bills, which failed to repeat last year's record drop.

The Office for National Statistics on Tuesday said consumer price inflation increased to 3.4 percent last month from 3 percent in February, well above the Bank of England's 2 percent target and economists' expectations of a rise to 3.2 percent.

In any case, if central banks don't raise rates, markets can do so on their own, as Greece is finding out. Again from Reuters:

Greek borrowing costs hit a 12-year high on Tuesday as Athens prepared to launch talks on an EU/IMF bailout package aimed at rescuing Greece from a debt crisis rocking the euro zone...

Finance Minister George Papaconstantinou said Greece would decide whether to trigger the aid mechanism or tap markets depending on borrowing costs and the progress of negotiations.

He said there was "no chance" the country would fail to cover its borrowing needs for May, after it paid a euro lifetime high of 3.65 percent earlier on Tuesday to attract buyers for 1.95 billion euros of 13-week T-bills...

At the opposite end of the curve, the premium investors' demand to buy Greek government bonds rather than euro zone benchmark Bunds also rose to a 12-year high, debt officials said, widening to 492 basis points.

US stocks rebound, Chinese stocks plunge

US stocks rebounded on Monday. Bloomberg reports:

U.S. stocks rose, rebounding from the biggest global slump since February, as Citigroup Inc. beat profit estimates and two people with knowledge of the matter said regulators were split on suing Goldman Sachs Group Inc...

The Standard & Poor’s 500 Index increased 0.5 percent to 1,197.52 at 4 p.m. in New York after falling as much as 0.7 percent. The Dow Jones Industrial Average rose 73.39 points, or 0.7 percent, to 11,092.05...

The S&P 500 tumbled 1.6 percent on April 16, the most since Feb. 4, after the SEC’s suit against Goldman Sachs spurred concern fallout from the financial crisis isn’t over...

A rise in the US leading index in March added to the cheer. Again from Bloomberg:

The index of U.S. leading indicators rose in March by the most in 10 months, a sign the economy will keep growing into the second half of the year.

The 1.4 percent increase in the New York-based Conference Board’s measure of the outlook for three to six months was more than anticipated and followed a revised 0.4 percent gain in February.

There was less cheer in Europe, however.

Greece's debt problem is looking as bad as ever. From Bloomberg:

The cost of insuring Greek sovereign debt against default surged to a record after the travel disruption caused by Iceland’s volcano delayed talks to help resolve the country’s debt crisis.

Credit-default swaps on Greece’s borrowings jumped 34 basis points to 472, according to CMA DataVision. The premium investors demand to buy 10-year Greek government debt over benchmark German bunds rose to the most since before the euro’s debut.

Meanwhile, Europe's economy continues to struggle. From Eurostat:

In the construction sector, seasonally adjusted production fell by 3.3% in the euro area (EA16) and by 2.9% in the EU27 in February 2010, compared with the previous month. In January, production decreased by 0.9% in the euro-area and by 1.1% in the EU27.

Flight disruptions due to volcanic activity are only making things worse.

In Asia, Bloomberg reports that Japanese consumer confidence has risen to the highest level since 2007.

Japan’s household sentiment rose to the highest level in more than two years in March, adding to evidence that households are reaping the benefits of the nation’s export-led rebound.

The confidence index climbed to 40.9 last month from 39.8 in February, the highest since October 2007, the Cabinet Office said today in Tokyo. It was the third consecutive advance.

However, Asian stocks were weighed down by the suit against Goldman Sachs as well as yet another move by Chinese authorities to curb property prices. AFP/CNA reports the latter.

China has moved to further curb real estate speculation by telling banks they will be allowed to refuse additional mortgages to buyers who own two or more properties...

Under the new rules, announced at the weekend, banks can also refuse loans to people who cannot prove they have lived and paid taxes for at least one year in the city where they intend to buy, the State Council, or cabinet, said.

Reuters reports the resulting plunge in Chinese stock prices.

The Shanghai Composite shed 4.8 percent for its biggest-one-day drop in eight months after China ordered local governments to take steps to control speculative buying in real estate, with the property sector index sliding 6.8 percent...

Hong Kong shares extended losses late in the day as China stocks fell further...

The benchmark Hang Seng Index shed 2.1 percent to 21,405 -- a three-week low and the biggest one-day drop in two months.

Economists raise forecasts for US growth

Economists are raising their forecasts for US economic growth this year, according to a Bloomberg report.

Surging profits are prompting economists to revise their estimates for growth, tilting the recovery more in the direction of a V-shape as businesses from Intel Corp. to JPMorgan Chase & Co. boost spending.

“Companies have a lot more capital, and they’re going to deploy it for equipment and hiring rather than sit on it, said Joseph LaVorgna, chief U.S. economist in New York at Deutsche Bank Securities Inc. “It’s quite possible the economy produces a recovery significantly stronger than people anticipate.”

The U.S. will grow 4 percent this year, he said. While that’s slower than the V-shaped recovery in 1984, when the economy expanded 7.2 percent after the 1981-82 recession, it’s faster than the 3 percent median estimate of 59 economists surveyed in April by Bloomberg News.

Barclays Capital, a unit of London-based Barclays Plc, raised its forecast for growth this year to 3.8 percent from 3.5 percent on April 16, while UBS Securities, a unit of UBS AG in Zurich, increased its prediction to 3.3 percent from 3 percent on April 9. The economy contracted 2.4 percent in 2009.

US housing starts rise, consumer sentiment falls

There have been more indications recently that US housing is stabilising. From Bloomberg on Friday:

Builders broke ground on more U.S. homes in March than anticipated and took out permits at the fastest pace in more than a year, a sign the weakest part of the economy has stabilized.

Housing starts climbed to an annual rate of 626,000 last month, up 1.6 percent from February’s 616,000 pace, the Commerce Department figures showed today in Washington. Building permits, a sign of future construction, climbed to the highest level since October 2008...

A report yesterday showed builder confidence rose this month more than anticipated as a measure of single-family sales reached the highest level in two years. The National Association of Home Builders/Wells Fargo index rose to 19 from 15 in March. Even though the gauge reached the highest level since March 2008, a reading below 50 means a majority of respondents said conditions remained poor.

However, consumer sentiment deteriorated in April.

The Reuters/University of Michigan preliminary index of consumer sentiment unexpectedly dropped to 69.5 this month from a final reading of 73.6 in March. The gauge was projected to rise to 75, according to the median forecast in a Bloomberg News survey of 69 economists.

Chinese economy surges, US manufacturing grows

China's economy accelerated in the first quarter. AFP/CNA reports:

China's economy grew a blistering 11.9 per cent in the first quarter, the government said Thursday, increasing pressure on Beijing to raise interest rates and loosen controls on its currency.

Gross domestic product in the world's third-largest economy maintained double-digit growth for the second straight quarter after expanding 10.7 per cent in the last three months of 2009.

Consumer price inflation slowed though.

The nation's closely watched consumer price index, the main gauge of inflation, rose 2.2 per cent in the first quarter compared with the same period a year earlier, the statistics bureau said.

The increase was slower than in February when consumer prices rose 2.7 per cent and below the government's inflation target of three per cent for the year...

This allowed Chinese authorities to focus on asset price inflation. From Bloomberg on Thursday:

China’s cabinet raised minimum mortgage rates and down payment ratios for some home purchases, saying “more forceful” steps are needed to cool speculation after property prices rose at a record pace in March.

Down payments for second homes must be at least 50 percent, up from 40 percent, and interest rates can’t be lower than 110 percent of benchmark rates, the State Council said in a statement, citing decisions made during a meeting yesterday. Banks should also raise down payment ratios and rates for third homes “by a broad margin.”

Meanwhile, the US economy is not doing too badly either. From Reuters:

Data on Thursday indicated manufacturing may continue leading growth for a while. Analysts said recovery should then shift from government stimulus and stockpiling to consumers once hiring picks up in the factory sector...

Expansion in manufacturing was highlighted by the New York Federal Reserve's "Empire State" general business conditions index which rose to a six-month high of 31.86 in April from 22.86 last month. Markets had expected a reading of 24.

Separately, the Philadelphia Federal Reserve Bank's business activity index rose to the highest level in four months during April. The rise in the index to 20.2 from 18.9 the prior month was a touch above market expectations.

A report from the Federal Reserve showed overall industrial production rose only 0.1 percent in March as heating needs fell, manufacturing output increased 0.9 percent led by widespread gains among durable goods industries...

But there was still plenty of slack in the labor market. Initial claims for state unemployment benefits rose 24,000 to a seasonally adjusted 484,000 last week. A Labor Department official attributed the spike to a backlog in applications from the Easter holiday and saw no unusual economic factors.

However, Europe remains plagued by concerns over Greece. From Bloomberg:

European Union finance ministers meet in Madrid today to discuss how to curb swelling budget deficits as Greece moved closer to asking for emergency aid to finance the region’s biggest shortfall.

Greek Prime Minister George Papandreou yesterday asked for a meeting with the EU, the International Monetary Fund and the European Central Bank, which agreed last week to back a 45 billion-euro ($61 billion) rescue package for the cash-strapped nation. Talks will begin in Athens on April 19...

The government’s request came after the yield on Greece’s benchmark 10-year government bond surged to 7.319 percent yesterday, higher than the level before the rescue package was announced on April 11. Papandreou said that the Athens talks didn’t mean Greece was activating the aid request and still planned to finance its debt in financial markets.

US retail sales and eurozone industrial production increase

The US economic recovery appears to have been sustained at least to the end of the first quarter. From Bloomberg:

Americans heartened by an improving job market flocked to shopping malls and auto showrooms in March, raising the odds of a durable economic recovery.

Retail sales increased 1.6 percent last month, more than anticipated and the biggest gain in four months, according to figures from the Commerce Department issued today in Washington. Another report showed consumer prices rose 0.1 percent...

The economy expanded “somewhat” across most of the U.S. in March as consumer spending and manufacturing improved, signaling the recovery is broadening without gaining much speed, according to the Fed’s Beige Book of regional economic activity issued today...

Separate figures from the Commerce Department showed a 0.5 percent gain in inventories in February, the most since July 2008, as companies boosted orders to keep pace with sales.

Industrial production in the euro area also appears to have performed quite well in the first quarter. Again from Bloomberg:

European industrial production increased more than economists forecast in February led by demand for intermediate goods such as steel and car engines.

Output in the economy of the 16 nations using the euro rose 0.9 percent from January, when it increased 1.6 percent, the European Union’s statistics office in Luxembourg said today. Economists projected a gain of 0.1 percent, the median of 32 estimates in a Bloomberg survey showed. From a year earlier, February production increased 4.1 percent.

Singapore dollar revalued on strong GDP growth, eyes turn to China

The US trade deficit widened in February, and that more often than not signals strong global economic growth.

And growth cannot get much stronger than that reported by Singapore for the first quarter. From Channel NewsAsia today:

Singapore's GDP expanded strongly by 13.1 percent on a year-on-year basis in the first quarter of 2010.

It grew by 32.1 percent on a seasonally-adjusted quarter-on-quarter annualised basis.

In advance estimates released on Wednesday, the Ministry of Trade and Industry (MTI) said it expects the Singapore economy to grow by 7.0 to 9.0 percent in 2010.

The response by policy-makers was predictable. Again from Channel NewsAsia:

The Monetary Authority of Singapore (MAS) will re-centre the exchange rate policy band of the Singapore dollar at the prevailing level and shift the policy band from zero percent appreciation to one of modest and gradual appreciation.

In a news release Wednesday, the MAS which acts as a central bank noted that the Singapore economy has rebounded with expectations to continue on a firm recovery path given the more favourable global economic outlook.

At the same time, inflationary pressures are likely to pick up, driven by rising global commodity prices as well as some domestic cost factors.

"Overall CPI inflation in 2010 is projected to be between 2.5% and 3.5%, slightly higher than the 2-3% forecast earlier" said the MAS.

The move by the MAS caused the Singapore dollar and other Asian currencies to advance today.

However, even as Singapore joins the growing list of smaller economies tightening monetary policy, the exchange rate policy that most people are concerned with is that of China's. From Bloomberg:

China’s economy may have expanded 11.7 percent in the first quarter, the fastest pace in almost three years, making officials more likely to raise interest rates and scrap the yuan’s peg to the dollar.

The median estimate in a Bloomberg News survey of 24 economists compares with a 10.7 percent gain in the previous quarter from a year earlier. The statistics bureau will release the data in Beijing tomorrow.

Apart from strong economic growth, asset prices are also surging in China. Bloomberg reports:

China’s property prices rose at a record pace in March, indicating government efforts to stem gains aren’t working and more drastic measures may be needed amid concern of a bubble in the nation’s housing market.

Residential and commercial real-estate prices in 70 cities climbed 11.7 percent from a year earlier, the National Bureau of Statistics said on its Web site. The data goes back to 2005.

China, though, seems determined to take its time in reviewing its exchange rate policy. From Reuters:

President Barack Obama said on Tuesday that China had yet to set a timetable for reforming the yuan despite "frank" conversations with President Hu Jintao and a Chinese spokesman said Beijing would not bow to foreign pressure on currency reform.

And a hike in interest rates may not come soon. From Bloomberg:

China’s central bank may not need to raise benchmark interest rates until the second half of this year after growth in loans and money supply cooled in March, a government economist said.

“Lower-than-expected loan and money supply growth indicates that monetary authorities’ measures to curb liquidity are effective,” Zhu Baoliang, chief economist at Beijing-based State Information Center, said in a telephone interview today. “The possibility of a near-term rate increase is diminishing.”

Zhu’s comments echo those of two government officials quoted by state media yesterday saying that an imminent rate increase is unlikely. China has kept benchmark rates on hold and asked lenders to set aside more cash as reserves this year as policy makers balance concerns of asset bubbles and overheating with those of a possible “double-dip” global slump.

Greek markets up as investor fears shift to Thailand

Stocks were mostly positive on Monday with the Dow regaining the 11,000 level.

However, the spotlight was on Greece following the rescue package announced over the weekend. From Bloomberg:

Stocks in Greece surged the most in two weeks after European governments offered the debt-plagued nation a rescue package worth as much as 45 billion euros ($61.3 billion).

The ASE Index advanced 69.82, or 3.5 percent, to 2,061.04 in Athens trading, the biggest gain among 96 global equity markets tracked by Bloomberg today. The FTSE/ASE 20 Index of Greece’s biggest companies rose 4 percent to 1,024.58. The Cypriot General Index added 2.8 percent to 1,531.42.

More significantly, Greek bond yields fell. Bloomberg reports:

Greek bonds jumped after a euro- region accord to lend Greece as much as 45 billion euros ($61 billion) at below-market interest rates boosted investor confidence that the government can reduce its budget deficit.

The two-year yield fell the most since Bloomberg began collecting the data in 1998. European finance ministers said yesterday they would offer as much as 30 billion euros in three- year loans in 2010 at about 5 percent, with the International Monetary Fund providing another 15 billion euros. The cost of insuring Greek debt using credit default swaps dropped the most on record...

Greek two-year yields tumbled 91 basis points to 6.25 percent as of 4:30 p.m. in London after earlier falling to 5.42 percent. The 4.3 percent security due March 2012 rose 1.57, or 15.7 euros per 1,000-euro face amount, to 96.50. Ten-year yields slid 44 basis points to 6.77 percent.

While Greek markets enjoyed a positive session on Monday, markets turned sour in Thailand. Bloomberg reports:

Thai stocks and the baht fell, while bond risk climbed after soldiers and protesters died in unrest that prompted the biggest selloff of the nation’s equities in more than four months.

The benchmark SET Index lost 3.6 percent to close at 760.9, the biggest drop since Oct. 15. The baht weakened 0.3 percent to 32.33 against the dollar, according to Bloomberg data.

As many as 21 people were killed and 858 injured when protesters seeking to oust Prime Minister Abhisit Vejjajiva fought with security forces two days ago. Thai authorities are investigating whether a third group may be responsible for gun and grenade attacks that sparked the deadliest street clashes between troops and anti-government protesters in 18 years.

China posts trade deficit, Greece offered loan aid

There were two interesting pieces of economic news over the weekend.

On Saturday, we had China reporting a trade deficit. From AFP/CNA:

China posted its first monthly trade deficit in six years in March as imports rocketed, far outstripping the growth in exports, customs officials announced Saturday.

Commerce minister Chen Deming had warned last month that the deficit was likely, but said it would only be a short-lived phenomenon for the nation's export-dependent economy.

Customs authorities said China's exports rose 24.3 percent in March to 112.1 billion dollars from the same month a year earlier, while imports soared 66 percent year-on-year to 119.3 billion dollars.

The trade deficit stood at 7.2 billion dollars, they said.

Perhaps more significantly, on Sunday, a rescue package was announced for Greece. Bloomberg reports:

European governments offered debt- plagued Greece a rescue package worth as much as 45 billion euros ($61 billion) at below-market interest rates in a bid to stem its fiscal crisis and restore confidence in the euro.

Forced into action by a surge in Greek borrowing costs to an 11-year high, euro-region finance ministers said yesterday they would offer as much as 30 billion euros in three-year loans in 2010 at around 5 percent. That’s less than the current three- year Greek bond yield of 6.98 percent. Another 15 billion euros would come from the International Monetary Fund.

“This is a huge amount,” said Stephen Jen, managing director at BlueGold Capital Management LLP in London and a former IMF economist. “This is more than a bazooka. They have gone nuclear on the issue of Greece. In the short run the market is short Greek assets so we’ll get a rally in those.”

Just last week, Stephen Jen had warned of a risk of a Greek default. Again from Bloomberg:

Greece may default on its debt as early as this year without “extraordinary” financial assistance from the European Union and International Monetary Fund, said Stephen Jen at BlueGold Capital Management LLP.

The challenges facing Greece are similar to those that confronted Argentina, which defaulted on $95 billion of debt in 2001, as the government enacts austerity measures to narrow the European Union’s biggest budget deficit, Jen, managing director at the hedge fund, said today in an interview in London. That may drive the Mediterranean nation into a recession, he said.

“A default may be ultimately unavoidable,” Jen said. “That eventuality may only be postponed by aid many times bigger than the 25 billion euros ($33 billion) people have in mind.” Any assistance needs to “impress the market,” he said.

We'll soon know how impressed the market is by the rescue package.

German industrial production flat, exports rise

On Thursday, Bloomberg reported that German industrial production stagnated in February.

German industrial production unexpectedly stagnated in February after harsh winter weather damped construction.

Production was unchanged from January, when it rose a revised 0.1 percent, the Economy Ministry in Berlin said today. Economists had forecast a 1 percent gain for February after an initially reported January increase of 0.6 percent, the median of 27 estimates in a Bloomberg News survey shows. From a year earlier, production rose 5.8 percent when adjusted for the number of work days.

Rising exports, however, continue to help to hold up the German economy.

Exports in Germany, Europe’s largest economy, rose the most in eight months in February as a strengthening global economy boosted companies’ orders.

Sales abroad, adjusted for working days and seasonal changes, rose 5.1 percent from January, when they fell 6.5 percent, the Federal Statistics Office in Wiesbaden said today. That’s the biggest increase since June 2009. Economists forecast a gain of 4 percent, the median of nine estimates in a Bloomberg News survey showed. Imports rose 0.2 percent from January.

Germany's strong external position has not made it more amenable to helping to resolve the Greek debt situation though.

German resistance to subsidizing emergency loans for Greece may hold up efforts by the European Union to reach agreement on terms of a proposed financial lifeline for the debt-strapped nation.

As officials in Brussels hammered out details to a framework for joint EU-International Monetary Fund aid, Germany restated its opposition to below-market rate loans. Greek Prime Minister George Papandreou says without the subsidies Greece can’t cut the EU’s-biggest budget deficit...

The wrangling came amid mounting speculation among economists that a bailout was imminent. UBS AG said it could come as soon as this weekend as Fitch Ratings cut Greece’s debt rating yesterday to BBB-, the same level as Bulgaria and Panama, and just one level above junk status. Fitch said the lack of agreement on the aid package is eroding confidence in Greece...

Greece will need to seek emergency funding to make bond payments and cover debt refinancing of more than 20 billion euros ($27 billion) in the next two months, UBS economists estimate. The premium investors demand to buy Greek 10-year bonds instead of German bunds jumped to 442 basis points on April 9, the highest since the introduction of the euro. That spread narrowed to 398 basis points yesterday on signs that a bailout might be nearer.

ECB and BoE leave interest rates unchanged

There was no action on interest rates by the two most important European central banks on Thursday. Bloomberg reports:

The European Central Bank left interest rates at a record low as the Greek fiscal crisis complicates its withdrawal of emergency stimulus measures.

The Frankfurt-based ECB kept its benchmark interest rate at 1 percent, as predicted by all 62 economists in a Bloomberg News survey. A separate poll shows the rate may stay there until the first quarter of next year. President Jean-Claude Trichet has already announced changes to ECB collateral rules to help Greece as it struggles to finance its debts...

The Bank of England kept its benchmark interest rate unchanged at a record low of 0.5 percent earlier today and held its bond-purchase plan at 200 billion pounds...

Economic data from Europe on Thursday were not particularly positive, with eurozone retail sales falling 0.6 percent in February.

News from Japan earlier on Thursday had been mixed. The current account surplus widened in February as exports jumped 47 percent from a year earlier but exports fell 3.9 percent from the previous month. Also, core private-sector machinery orders fell again in February by 5.4 percent but the Economy Watchers index climbed to 47.4 in March, a fourth straight gain.

Eurozone economy flat in fourth quarter

It turns out that the euro area did not grow in the fourth quarter. Bloomberg reports:

Europe’s economy unexpectedly stagnated in the fourth quarter as companies cut spending more than previously estimated.

Gross domestic product in the 16-nation euro region remained unchanged compared with the third quarter, when it rose 0.4 percent, the European Union’s statistics office in Luxembourg said today. It had previously reported a fourth- quarter expansion of 0.1 percent. Corporate investment dropped 1.3 percent instead of the 0.8 percent estimated earlier.

But growth could be picking up again. From another Bloomberg report:

Europe’s services and manufacturing industries expanded at a faster pace than initially estimated in March as companies stepped up output to meet global orders.

A composite index based on a survey of euro-area purchasing managers in both industries rose to 55.9 from 53.7 in February, London-based Markit Economics said today. That’s the fastest pace since August 2007 and above an initial estimate of 55.5 published on March 24. A reading above 50 indicates expansion...

An index of services, which account for about 60 percent of the region’s gross domestic product, rose to 54.1 in March from 51.8 in the previous month, Markit said. That’s above the initial estimate of 53.7 and the fastest pace of expansion since November 2007. A gauge of manufacturing increased to 56.6 from 54.2.

Data out of the UK on Wednesday were mixed. Reuters reports:

[T]he CIPS/Markit purchasing managers' index showed the country's services sector expanded less than expected in March.

The reading slipped to 56.5 from February's three-year high of 58.3.

Separate figures from the Office for National Statistics showed services output fell in the first month of the year at its fastest monthly pace since August.

A survey from the British Chambers of Commerce showed export balances for both services and manufacturing firms improved at the start of this year. However, investment balances worsened and confidence remained low by pre-recession standards...

Another survey, from the Recruitment and Employment Confederation, showed the number of people placed in permanent jobs rose last month at the fastest rate since October 1997.

BoJ leaves interest rate unchanged

Despite constant worries about deflation, Japan's economy continues to recover. From Bloomberg on Tuesday:

Japan’s broadest indicator of economic health rose for an 11th month, extending the longest streak since 1997, as the nation sustained an economic recovery amid deflation.

The coincident index, a composite of 11 indicators including factory production and retail sales, climbed to 100.7 in February from 100.3 a month earlier, the Cabinet Office said in Tokyo today. The median estimate of 18 economists surveyed by Bloomberg News was for 100.5...

The leading index, a composite of 12 indicators including stock prices and consumer confidence, rose to 97.9 in February, the report showed...

Don't expect an increase in interest rates soon from the BoJ though. From AFP/CNA today:

Japan's central bank kept its key lending rate unchanged at 0.1 per cent Wednesday and signalled that a recovery in the world's number two economy is on track despite the "critical challenge" of deflation.

But while strengthening overseas markets and stimulus measures have buoyed the economy, weak domestic demand poses a key hurdle, the bank said.

There is "not yet sufficient momentum to support a self-sustaining recovery in domestic private demand," it said in a statement at the end of a two-day meeting.

RBA raises interest rate

The RBA raised its official interest rate again today. Bloomberg reports:

Australia’s central bank raised its benchmark interest rate to 4.25 percent and signaled further increases, dismissing warnings that higher borrowing costs are already eroding consumer spending.

Governor Glenn Stevens boosted the overnight cash rate target from 4 percent, the Reserve Bank of Australia said in a statement in Sydney today. The fifth increase in borrowing costs in six meetings was predicted by 13 of 23 economists in a Bloomberg News survey.

The Federal Reserve, in contrast, will probably take its time in raising rates, although Monday's economic data did not provide any reason to be concerned about the economic recovery. Again from Bloomberg:

Service industries expanded in March at the fastest pace since May 2006, indicating the U.S. recovery is spreading beyond manufacturing and starting to create jobs.

The Institute for Supply Management’s index of non- manufacturing businesses that make up almost 90 percent of the economy rose to 55.4, higher than anticipated, from 53 in the prior month. Readings above 50 signal expansion...

More Americans signed contracts in February to buy previously owned homes, according to the National Association of Realtors. The index of purchase agreements, or pending home sales, rose 8.2 percent, the second-biggest gain on record and the largest since October 2001.

US employment rises in March

The US economy added jobs in March. Bloomberg reports:

Employers in the U.S. created more jobs in March than at any time in the past three years, showing the recovery from the worst recession since the 1930s is broadening and becoming more entrenched.

Payrolls rose by 162,000 workers, the third gain in the past five months and the most since March 2007, figures from the Labor Department showed today in Washington. The increase included 48,000 temporary workers hired by the government to conduct the census. Unemployment was 9.7 percent for a third month...

Private payrolls increased by 123,000 in March, the third consecutive increase and the biggest since May 2007. Employment at government agencies climbed by 39,000 workers, reflecting the increase in census staff. Budget-constrained state and local governments reduced headcount last month...

Employment of temporary workers, which are considered a harbinger of permanent hiring, climbed in March for a sixth consecutive month. Their share in the payroll count is diminishing, showing companies are becoming more optimistic, said Christopher Low, chief economist at FTN Financial in New York...

Not all the data in the employment report was positive. The figures showed average earnings per hour dropped last month and the number of people working part-time because they couldn’t find full-time work increased.

The latest employment reports adds to signs that the recession is over. Again from Bloomberg:

The biggest increase in employment in three years makes it “pretty clear” the deepest U.S. recession since the 1930s has ended, said the head of the group charged with making the call...

“I personally put lots of emphasis on employment,” Robert Hall, who heads the National Bureau of Economic Research’s Business Cycle Dating Committee, said in an interview. “I would say ‘pretty clear’ is a good description” for whether the economic contraction has ended, he said.

Global manufacturing activity accelerates

Thursday’s economic data showed that the global economic recovery is continuing, especially in manufacturing.

Bloomberg reports the US data.

Manufacturing grew in March at the fastest pace in more than five years, raising the odds the U.S. has embarked on a prolonged economic expansion.

The Institute for Supply Management’s factory index rose to 59.6, the highest level since July 2004 and exceeding the most optimistic forecast in a Bloomberg News survey of 77 economists. Readings greater 50 signal growth...

Fewer Americans filed claims for jobless benefits last week, the Labor Department also reported. Applications for unemployment insurance payments dropped by 6,000 to 439,000 in the week ended March 27. The average number of claims during the past four weeks fell to the lowest level since September 2008...

Not all the news today was good. Construction spending fell 1.3 percent in February to the lowest level in more than seven years, signaling this part of the economy remains in a recession, figures from the Commerce Department showed. The decrease followed a revised 1.4 percent drop in January that was more than twice as large as previously estimated.

European manufacturing accelerated in March, as Bloomberg reports:

Europe’s manufacturing industry expanded at a faster pace than initially estimated in March as reviving global demand prompted companies to step up output.

A manufacturing index based on a survey of euro-area purchasing managers increased to 56.6 from 54.2 in February, London-based Markit Economics said today. That’s above an initial estimate of 56.3 and the fastest pace since November 2006. A reading above 50 indicates expansion...

In the U.K., the euro region’s biggest trading partner, a manufacturing gauge based on a survey of companies rose to 57.2 from 56.5 in February, Markit and the Chartered Institute of Purchasing and Supply said. That was the highest since October 1994 and above the 56.8 forecast by economists, according to the median of 24 forecasts in a Bloomberg survey.

China's manufacturing also accelerated in March. AFP/CNA reports:

Chinese manufacturing picked up in March, government and HSBC surveys showed Thursday, with the bank saying it could indicate an accelerating economy and raise chances of an interest rate hike.

The HSBC China Manufacturing PMI, or purchasing managers' index, rose to 57.0 last month after falling to 55.8 in February, when the indicator was likely affected by the Lunar New Year holiday.

A separate official PMI published by the China Federation of Logistics and Purchasing (CFLP) showed manufacturing activity rose to 55.1 after slipping to 52.0 in February.

Meanwhile, Japan's business confidence has improved. Again from AFP/CNA:

Japanese business confidence has improved for a fourth straight quarter as the world's number two economy slowly recovers from its worst slump in decades, the Bank of Japan said Thursday.

Sentiment among major manufacturers rose to its highest level since September 2008, with a reading of minus 14 in March from a revised minus 25 in December, according to the bank's Tankan survey of more than 11,000 firms.

US factory orders rise

US economic data were mixed on Wednesday. Bloomberg reports:

Manufacturers are driving the U.S. economic recovery as the real estate industry struggles to recover from recession, hurting employment, reports today showed.

Factory orders rose 0.6 percent in February after surging 2.5 percent, the Commerce Department said in Washington... Figures from ADP Employer Services showed an unexpected 23,000 drop in company payrolls this month, led by a slump in construction jobs...

The Institute for Supply Management-Chicago Inc. said today its business barometer fell to 58.8, lower than the median forecast in a Bloomberg survey, from an almost five-year high of 62.6 in February. Figures greater than 50 signal expansion.

The data from Japan were negative, as housing starts fell 9.3 percent in February from a year earlier, faster than an 8.1 percent annual decline in the previous month while the Nomura/JMMA Japan manufacturing purchasing managers index fell to 52.4 in March from 52.5 in February.

In the euro area, the wrong indicators showed increases. Consumer prices increased 1.5 percent in March from a year earlier after a 0.9 percent gain in February while unemployment rose to 10 percent in February, the highest rate since August 1998.