Eurozone inflation accelerates, US consumer confidence and spending increase

The euro area is experiencing higher inflation and lower confidence in the economic outlook. Bloomberg reports:

European inflation accelerated to the fastest pace in two and a half years and confidence in the economic outlook declined as surging energy prices threatened to undermine growth.

Inflation in the 17-nation euro region quickened to 2.8 percent in April from 2.7 percent, the European Union’s statistics office in Luxembourg said today in an initial estimate. Economists had expected inflation to remain unchanged, according to the median of 34 forecasts in a Bloomberg News survey. An index of executive and consumer sentiment slipped to 106.2 from 107.3 in March, the sharpest drop since May 2010, and unemployment held at 9.9 percent, separate reports showed.

Consumer confidence did improve in the US though. Bloomberg reports:

Confidence among U.S. consumers climbed in April from the lowest level in more than a year as an improving job market helped Americans to withstand rising fuel costs.

The Thomson Reuters/University of Michigan final index of consumer sentiment rose to 69.8, less than forecast and following March’s 67.5 reading that was the lowest since November 2009. The gauge was projected to rise to 70, according to the median forecast of 52 economists surveyed by Bloomberg News, and compares with a preliminary index of 69.6.

US consumer spending has been steady recently anyway, although inflation is eating into income gains. Again from Bloomberg:

Americans increased their spending in March as they paid more for gasoline and groceries, suggesting income gains may need to pick up to prevent a bigger squeeze on household finances.

Purchases rose 0.6 percent after a revised 0.9 percent gain the prior month that was higher than previously estimated, the Commerce Department said today in Washington. After adjusting for changes in prices, the spending that accounts for 70 percent of the economy rose 0.2 percent in March...

The Institute for Supply Management-Chicago Inc. said today its business barometer dropped to 67.6 in April from 70.6 in March. Figures greater than 50 signal expansion, and the median forecast in a Bloomberg News survey of economists called for a decline to 68.2...

The Commerce Department’s report showed Americans’ disposable incomes, or the money left over after taxes, rose 0.1 percent after adjusting for inflation, following no change in February, a reminder of the challenge represented by rising food and energy costs. The savings rate held at 5.5 percent...

The report showed the Fed’s preferred price measure, the so-called core inflation reading that excludes food and fuel, rose 0.9 percent in March from a year earlier, matching the 12- month gain in February. The Fed’s so-called central tendency forecast calls for a 1.3 percent to 1.6 percent increase this year.

Figures from the Labor Department today showed employment expenses rose in the first quarter at a rate that indicates inflation may stay subdued in coming months.

The 0.6 percent increase in the employment cost index from January through March followed a 0.4 percent gain in the prior three-month period, Labor Department figures showed today. Economists projected a 0.5 percent climb, according to the median estimate in a Bloomberg survey.

China's economy also appears to be holding up well. From AFP/CNA:

Manufacturing activity in China held steady in April, according to an independent reading Friday by HSBC, which suggested Beijing was likely to press on with a monetary tightening policy.

The HSBC China purchasing managers index (PMI) was 51.8, unchanged from March, the British banking giant said in a statement.

Japanese industrial production and household spending plunge

Data for March show the big hit that the Japanese economy suffered as a result of the earthquake. AFP/CNA reports:

Japan's factory output took a record tumble in March after a devastating earthquake and tsunami forced the nation's biggest companies to shutter plants and crippled supply chains, data showed Thursday.

A 15.3 per cent dive in Japan's industrial production month-on-month was the sharpest since records began in 1953, the government said...

Japanese household spending plunged 8.5 per cent in March from a year earlier in the biggest drop since records began in 1964...

The core consumer price index fell 0.1 per cent in March, matching market expectations as Japan remained mired in deflation for a 25th month in a row.

However core prices in April in Tokyo -- seen as a leading indicator for the nation -- rose 0.2 per cent, the data showed.

The unemployment rate stood at 4.6 per cent in March, unchanged from a month earlier, but figures from northeastern Japan, hit by the March 11 disaster, were excluded, the government said Thursday.

Not surprisingly, the Bank of Japan has lowered its growth forecast for the economy for the current fiscal year. AFP/CNA reports:

The Bank of Japan on Thursday cut its growth forecast for this fiscal year to 0.6 per cent from its earlier 1.6 per cent projection, citing the impact of the March 11 quake and tsunami...

However, the bank raised its real GDP growth outlook for fiscal 2012 to 2.9 per cent growth from its earlier 2.0 per cent forecast, citing the stimulus it expects from vast reconstruction efforts in the disaster-hit northeast...

The central bank also predicted an end to deflation, which has long hampered growth in the world's third largest economy, this year.

For both fiscal 2011, which started on April 1, and next year, it predicted a 0.7 per cent rise in the core consumer price index. Its earlier predictions were for 0.3 per cent this year and 0.6 per cent in fiscal 2012.

Earlier in the day the BoJ left its key interest rate unchanged at between zero and 0.1 per cent to free up credit and stimulate the economy.

AFP/CNA also reports the latest fiscal action from the Japanese government.

The Japanese government submitted a US$49 billion budget to parliament on Thursday to help fund reconstruction after a deadly earthquake and tsunami...

The four trillion yen (US$49 billion) extra budget, announced last week, would cover restoration work such as clearing massive amounts of rubble and building temporary housing for the thousands of people who lost their homes.

Meanwhile, the US economy already appears to have cooled in the first quarter. From Bloomberg:

The U.S. economy slowed more than forecast in the first quarter as government spending declined by the most since 1983 and household purchases cooled.

Gross domestic product rose at a 1.8 percent annual rate from January through March after a 3.1 percent pace in the final three months of 2010, the Commerce Department said today in Washington. Economists projected 2 percent growth, according to the median estimate in a Bloomberg News survey. Another report showed rising gasoline prices depressed consumer confidence last week.

Not that investors seem to care much.

Stocks rose, sending the Standard & Poor’s 500 Index to the highest levels since 2008, as better-than-estimated corporate earnings tempered concern over slowing growth. The S&P 500 climbed 0.4 percent to 1,360.48 at 4 p.m. in New York.

There was some good news for the housing market though.

A report from the National Association of Realtors today showed an increase in the number of Americans signing contracts to buy previously owned homes. The index of pending home resales climbed 5.1 percent after a revised 0.7 percent increase the prior month, the group said.

Fed to maintain stimulus, UK economy rebounds

Fed chairman Ben Bernanke gave his first post-FOMC meeting press conference on Wednesday. Reuters reports:

Federal Reserve Chairman Ben Bernanke signaled on Wednesday that the U.S. central bank is in no rush to scale back its support for the economy with the labor market still in a "very, very deep hole."

The Fed trimmed its forecast for 2011 economic growth in a nod to a weak start to the year and bumped up its projections for inflation, which caused some jitters in financial markets.

The central bank's policy-setting committee said after a two-day meeting it will complete the purchase of $600 billion in bonds in June to support the economy's recovery, and said it would keep its balance sheet, currently at $2.67 trillion, steady for a time to ensure its support does not fade.

It also repeated it plans to keep overnight interest rates, which it has held near zero since December 2008, extraordinarily low for "an extended period."

While the Fed reduced its growth forecast for the US economy, data out on Wednesday suggested that growth will remain strong in coming months. From Bloomberg:

Demand for U.S. durable goods rose in March for a third consecutive month, indicating business investment will pick up.

Bookings for equipment meant to last at least three years climbed 2.5 percent after a 0.7 percent gain the prior month that reversed a previously reported drop, the Commerce Department said today in Washington. The increase reflected growing demand for machinery, computers and automobiles.

Industrial new orders also increased in the euro area in February. Eurostat reports:

In February 2011 compared with January 2011, the euro area (EA17) industrial new orders index rose by 0.9%. In January the index grew by 1.2%. In the EU27, new orders increased by 1.2% in February 2011, after a rise of 0.5% in January. Excluding ships, railway & aerospace equipment, for which changes tend to be more volatile, industrial new orders increased by 0.6% in the euro area and by 0.3% in the EU27.

Meanwhile, the UK economy rebounded in the first quarter of the year. Reuters reports:

Britain's economy made only a sluggish start to 2011 as it crawled back from a slump at the end of last year, snuffing out chances of a Bank of England rate rise next week and hampering the government's austerity drive...

Overall output expanded 0.5 percent in the first three months of the year after declining by the same amount at the end of 2010 as construction posted its biggest drop since the height of Britain's worst recession since World War Two.

The UK economy may struggle to regain momentum though. Again from Reuters:

Consumer morale unexpectedly deteriorated in April to its gloomiest since the country was in the depths of recession, as people braced to take a hit from public spending cuts, a survey showed on Thursday.

The GfK NOP consumer confidence index fell to -31 in April from -28 in March, its lowest reading since February 2009, and confounding analysts' expectations for a steady reading.

It is Japan, though, that faces the bigger struggle. AFP/CNA reports a plunge in retail sales in March.

Japanese retail sales recorded their steepest drop in 13 years in March, the government said Wednesday as last month's massive earthquake and tsunami dampened consumer sentiment.

Retail store sales in March tumbled 8.5 per cent from a year earlier, reversing a 0.1 per cent gain in February, the ministry of economy, trade and industry said.

US home prices fall, consumer confidence rises

US home prices appear to be resuming their downtrend. Bloomberg reports:

Residential real-estate prices dropped in the 12 months to February by the most in more than a year, putting the market on the verge of eclipsing the nadir reached during the U.S. recession.

The S&P/Case-Shiller index of property values in 20 cities fell 3.3 percent from February 2010, the biggest year-over-year decline since November 2009, the group said today in New York. At 139.27, the gauge was just shy of the six-year low of 139.26 in April 2009, two months before the economic slump ended.

The good news on Tuesday is that consumer confidence rose in April.

The Conference Board’s consumer confidence index rose to 65.4 from a revised 63.8 reading in March, figures from the New York-based private research group showed. The median forecast of economists surveyed by Bloomberg News projected it would advance to 64.5.

However, confidence in Europe's financial health took a knock on Tuesday. From Bloomberg:

Greece’s 2010 budget gap was more than a percentage point wider than the government estimated after a review by Europe’s statistics agency, the latest blow to the nation’s finances as it seeks to avoid a debt restructuring.

Last year’s shortfall was 10.5 percent of gross domestic product, compared with 15.4 percent of GDP in 2009, Eurostat said in a statement today from Luxembourg. In February, the Greek government had said it met its revised target for a 9.4 percent deficit in 2010...

Euro-area debt reached a record in 2010, Eurostat also said today, making it harder for the bloc’s better-off countries to bear the costs of the fiscal crisis triggered by Greece. Debt rose in all 16 euro-region countries, lifting the bloc’s average to 85.1 percent of GDP from 79.3 percent in 2009, the statistics office said. Greece’s debt ballooned to 142.8 percent of GDP, the highest in the euro’s 12-year history.

Meanwhile, China appears to have taken further action to curb credit risk in its economy. Bloomberg reports:

China’s banking regulator set capital targets for the nation’s five biggest lenders above the minimum 11.5 percent ratio amid concern that credit risks may rise, three people with knowledge of the matter said.

Industrial & Commercial Bank of China (601398) Ltd., the world’s largest lender, and three rivals were told last month to maintain capital adequacy ratios of at least 11.8 percent in 2011, one of the people said, declining to be identified as the plan isn’t public. Agricultural Bank of China Ltd. (1288), the nation’s fourth biggest, should target 11.7 percent, two of them said.

The UK economy, though, is already showing signs of cooling. From Reuters:

Manufacturers made a lacklustre start to the second quarter of 2011, with orders unexpectedly weakening in April, a survey showed on Tuesday, suggesting the UK's economic recovery remains fragile...

The Confederation of British Industry said its monthly factory orders balance fell to -11 in April -- its lowest since January -- down from a three-year high of +5 set last month.

Japanese auto production plunges in March, US new home sales rise

Monday brought confirmation that Japanese auto production plunged in March. AFP/CNA reports:

Japan's leading automakers Toyota, Nissan and Honda said on Monday that domestic production plummeted in March after the massive quake and tsunami, which damaged parts suppliers and nuclear power plants.

Toyota, the world's biggest auto maker, said production in Japan plunged 62.7 per cent year on year in March.

In another hard-hit industry, US new homes sales rebounded a little in March from a near-record low. Reuters reports:

Sales of new U.S. homes rose in March and the number of new properties on the market was its lowest since the 1960s, but further gains will be hampered by the broader property glut.

Single-family home sales rose 11.1 percent to a seasonally adjusted annual rate of 300,000, the Commerce Department said on Monday, up from a near record low pace of 270,000 in February when harsh winter weather hit the economy...

A separate report on Monday showed manufacturing activity in the Texas area slowed in April. Reports on regional factory activity so far have been too mixed to give a clear new picture of the sector, which took a breather in March.

UK retail sales and US leading index rise, Ifo index falls

The economic data on Thursday were mostly positive.

UK data showed surprisingly strong retail sales in March, according to Reuters.

Retail sales rose unexpectedly in March, helped by stronger food sales but doing little to alter a picture of fragile consumer demand that is deterring the Bank of England from raising interest rates...

The Office for National Statistics said retail sales volumes including automotive fuel rose 0.2 percent last month, confounding forecasts for a 0.5 percent fall, after February's 0.9 percent decline...

Britain is pressing on with spending cuts aimed at eliminating the budget deficit over the next four years and separate data showed the government's preferred measure of public borrowing fell to 141.1 billion pounds compared to 145.9 billion predicted at last month's budget...

Separate figures released by the Bank of England showed that major lenders approved 44,000 mortgages for house purchase in March, up from 43,000 in February.

Despite the modest rise, approvals are still running at around half their long-run levels. The net lending flow to businesses fell by 0.4 billion pounds in February, versus a 2.7 billion pound decline in January.

In the US, the leading index rose again in March. Bloomberg reports:

The index of U.S. leading indicators increased for a ninth month in March and Americans’ confidence rose for a fourth week, signaling the expansion may withstand higher fuel costs.

The Conference Board’s gauge of the outlook for the next three to six months rose 0.4 percent after a revised 1 percent gain in February that was larger than previously estimated, the New York-based group said today. The Bloomberg Consumer Comfort Index climbed to minus 42.6 in the period to April 17, the best reading since the end of February...

The Federal Reserve Bank of Philadelphia’s general economic index dropped to 18.5, the lowest level since November, from 43.4 the prior month...

New applications for unemployment benefits dropped by 13,000 to 403,000 in the week ended April 16, the Labor Department said...

However, business confidence fell in Germany in April. Again from Bloomberg:

German business confidence fell for a second month in April after oil prices rose to the highest in 2 1/2 years, damping the global economic outlook and threatening to curb domestic consumer spending.

The Ifo institute in Munich said its business climate index, based on a survey of 7,000 executives, dropped to 110.4 from 111.1 in March. Economists expected a decline to 110.5, according to the median of 38 forecasts in a Bloomberg News survey. The index rose to 111.3 in February, the highest since records for a reunified Germany began in 1991.

Thailand raises rates, global stocks jump

Thailand raised interest rates on Wednesday. AFP/CNA reports:

Thailand's central bank raised its official interest rate Wednesday for the sixth time in less than a year in an attempt to contain inflation.

The Monetary Policy Committee (MPC) voted six to one to increase the official cost of borrowing to 2.75 percent, up from 2.50 percent previously, and said in a statement it was ready to take further action if needed.

Not that global investors cared too much. From Bloomberg:

Global stocks staged the biggest rally of 2011 and the Dow Jones Industrial Average reached an almost three-year high amid better-than-estimated results at companies from Intel Corp. (INTC) to United Technologies Corp. and L’Oreal SA. Gold jumped to a record as the dollar slid.

The MSCI World (MXWO) Index jumped 2 percent at 4 p.m. in New York, the biggest increase since Nov. 4, and emerging-market shares rallied the most in 10 months. The Standard & Poor’s 500 Index climbed 1.4 percent. The U.S. currency weakened versus all 16 major peers, dragging the Dollar Index to the lowest level since November 2009. Ten-year U.S. Treasury yields rose four basis points to 3.41 percent. Sugar and nickel led commodities higher and gold traded above $1,500 an ounce for a second day.

The report on US existing home sales in March didn't spoil investors' mood.

Stocks extended gains after sales of previously owned U.S. homes increased 3.7 percent to a 5.1 million annual rate in March, exceeding the 5 million median forecast of economists surveyed by Bloomberg News, figures from the National Association of Realtors showed. The median price declined from a year earlier, and 40 percent of the sales were distressed properties.

Meanwhile, on the European sovereign debt front, there was some good news from Spain. From Bloomberg:

Spain sold 3.4 billion euros ($4.9 billion) of bonds and demand rose even as its borrowing costs increased amid expectations Greece may restructure its debt.

The Treasury said it sold 2.49 billion euros of 10-year bonds at an average yield of 5.472 percent, compared with 5.162 percent at the previous auction on March 17. It also sold 885 million euros of bonds maturing Jan. 31, 2024 at 5.667 percent.

Economic data positive for US and euro area, negative for Japan

US housing starts saw a small rebound in March. Bloomberg reports:

A gain in March housing starts failed to make up for ground lost the prior month, as U.S. home builders continue to struggle almost two years into the economic recovery.

Work began on 549,000 houses at an annual pace, up 7.2 percent from the prior month and exceeding the 520,000 median forecast of economists surveyed by Bloomberg News, figures from the Commerce Department showed today in Washington. Starts fell 19 percent in February to the lowest level in almost two years.

Meanwhile, the eurozone economy continues to show resilience. From Bloomberg:

European services and manufacturing growth unexpectedly accelerated in April, suggesting the region’s economy is weathering surging energy costs and tougher austerity measures.

A composite index based on a survey of euro-area purchasing managers in both industries rose to 57.8 from 57.6 in March, London-based Markit Economics said in a statement today. Economists had projected a drop to 57, the median of 13 estimates in a Bloomberg News survey showed. A reading above 50 indicates growth...

The euro-area services indicator fell to 56.9 from 57.2 in March, Markit said in the preliminary release. The manufacturing gauge increased to 57.7 from 57.5. In Germany, which has fueled the region’s recovery, an indicator of manufacturing rose to 61.7 from 60.9 in March, while a services gauge slipped to 57.7 from 60.1. French manufacturing growth also quickened.

However, consumer confidence in the euro area weakened in April. Bloomberg reports:

European consumer confidence weakened more than economists forecast in April as surging energy costs sapped households’ spending power and countries from Ireland to Spain cut spending to lower budget deficits.

An index of household sentiment in the 17-nation euro area fell for a second month to minus 11.4 from minus 10.6 in March, the Brussels-based European Commission said in an initial estimate today. That’s the lowest since August. Economists forecast a drop to minus 11, the median of 22 estimates in a Bloomberg News survey showed.

Consumer confidence had also, unsurprisingly, fallen in Japan in March. AFP/CNA reports:

Japanese consumer confidence fell in March from the previous month to its lowest since June 2009 as a record earthquake, tsunami and a nuclear crisis cast a shadow on the economy.

Japan's consumer sentiment index fell to 38.6 in the month, from a seasonally adjusted 41.2 in February, data from the Cabinet Office showed.

And to make matters worse for Japan, Bloomberg reports today that exports also fell.

Japan’s exports fell for the first time in more than a year, underscoring concern that the economy will shrink after the nation’s record earthquake killed thousands, knocked out plants, and triggered a nuclear crisis.

Overseas shipments declined 2.2 percent in March from a year earlier, from February’s 9 percent gain, the Finance Ministry said in Tokyo today. The median estimate of 19 economists surveyed by Bloomberg News was for a 1.1 percent drop.

Chinese home price growth slows, debt concerns rise in US and Europe

China appears to be having some success in cooling its housing market. From Bloomberg on Monday:

China’s new home price growth slowed in Beijing and Shanghai in March as the government intensified property curbs, sending the property stock index to one-month high.

New home prices in the capital of Beijing rose 4.9 percent in March from a year earlier, easing from a 6.8 percent gain in February, the statistics bureau said on its website today. In Shanghai, the country’s financial hub, prices climbed 1.7 percent last month, down from 2.3 percent growth in February. Of the 70 cities monitored by the government, 67 cities posted gains, down from 68 in the first two months, the data showed.

Meanwhile, Reuters reports that house prices in England and Wales managed to rise again in April.

Asking prices for houses in England and Wales nudged 0.1 percent higher in April compared with a year ago, although agents saw the biggest monthly rise in unsold properties in nearly four years, a survey said on Monday.

Property website Rightmove said April's small rise compared with a 0.9 percent annual gain in March and took the average asking price to 235,822 pounds from 231,790 pounds.

The US housing market, though, shows few signs of recovery. From Bloomberg:

Confidence among U.S. homebuilders fell in April, led by a decline in the outlook for sales, a sign the residential construction market may languish near record-low levels.

The National Association of Home Builders/Wells Fargo sentiment index declined to 16 this month from 17 in March, data from the Washington-based group showed today. A measure of sales expectations for the next six months dropped to the lowest level since October, and a gauge of current purchases also fell. Readings below 50 mean more respondents said conditions were poor.

What captured the headlines in the US on Monday though was a downgrade from S&P on the outlook for the rating for US government debt. Again from Bloomberg:

Standard & Poor’s put the U.S. government on notice that it risks losing its AAA credit rating unless policy makers agree on a plan by 2013 to reduce budget deficits and the national debt.

“If an agreement is not reached and meaningful implementation does not begin by then, this would in our view render the U.S. fiscal profile meaningfully weaker than that of peer ‘AAA’ sovereigns,” New York-based S&P said today in a report that maintained its top rating on U.S. long-term debt while lowering the outlook to “negative” for the first time.

But the more immediate debt problems remain in Europe, as Reuters reminds us.

Fresh fears that Greece will have to restructure its mountain of debt, possibly as early as this summer, sent the euro and some euro zone bond prices tumbling on Monday as the bloc's debt crisis escalated.

German government sources told Reuters in Berlin that they did not believe Greece, which sealed a 110 billion euro (96.3 billion pound) bailout from the EU and IMF a year ago, would make it through the summer without a restructuring.

Market confidence was also hit by a new threat to Portugal's pending bailout from the rise of an anti-euro party in Finnish elections.

China tightens monetary policy amid rising global inflation

China has raised its bank reserve ratio requirement again.

On Sunday, the People's Bank of China said that it would raise the reserve ratio requirement by 50 basis points to 20.5 percent effective from 21 April. This will be the fourth such move this year and comes less than two weeks after an interest-rate hike.

The rise in the reserve ratio requirement also comes in the wake of a report last week that showed that China's inflation rate accelerated to 5.4 percent in March, the highest in almost three years.

China is no longer alone among the world's biggest economies in tightening monetary policy. On 7 April, the European Central Bank had raised interest rates by 25 basis points to 1.25 percent, its first rate hike since 2008.

The euro area last week also reported an acceleration in inflation. The inflation rate in the euro area rose to 2.7 percent in March from 2.4 percent in February. This was the highest inflation rate since October 2008.

Incidentally, the United States reported the same inflation rate of 2.7 percent for March. This was a sharp jump from the 2.1 percent inflation rate reported for February.

However, unlike the ECB, the Federal Reserve focuses on consumer prices excluding food and energy, and these were up only 1.2 percent in the 12 months to March. The low rate of inflation according to this measure suggests that the Fed is likely to lag the other major central banks in tightening monetary policy.

Among the major economies that released inflation data last week, the United Kingdom proved to be an exception by reporting lower inflation for March. A report last week showed that the UK inflation rate fell to 4.0 percent last month from 4.4 percent in February.

Nevertheless, the March rate was still twice as high as the Bank of England's inflation target of 2.0 percent, suggesting that the central bank is still likely to raise interest rates later this year.

Inflation accelerates in China, euro area and US

It looks like China will continue to tighten policy in coming months. AFP/CNA reports the latest inflation and economic data:

China said Friday its robust economy slowed slightly in the first quarter of 2011 but inflation hit a 32-month high, suggesting Beijing's efforts to rein in soaring costs are still falling short.

Gross domestic product in the world's second-largest economy expanded 9.7 percent on year in the first three months of the year, the National Bureau of Statistics said, fuelling market expectations for more tightening measures.

The figure was lower than the 9.8 percent growth rate posted in the final quarter of 2010...

The politically sensitive consumer price index rose 5.4 percent year-on-year in March -- the fastest pace since July 2008 and well above the government's 2011 target of four percent -- and 5.0 percent in the first quarter...

Industrial output from China's millions of factories and workshops rose 14.4 percent year-on-year in the first quarter, while fixed asset investment, a measure of government spending on infrastructure, rose 25 percent.

Retail sales in the first three months of the year were up 16.3 percent.

Europe also saw inflation accelerate in March. Bloomberg reports:

European inflation accelerated more than previously estimated to the fastest in more than two years in March, led by surging energy costs, adding pressure on the European Central Bank to keep raising interest rates.

Inflation in the 17-nation euro region quickened to 2.7 percent from 2.4 percent in February, the European Union’s statistics office in Luxembourg said today. That’s above an initial March estimate of 2.6 percent and the fastest since October 2008. Euro-area exports rose 1.6 percent in February from the previous month, a separate report showed.

The 12-month inflation rate also hit 2.7 percent in the US. MarketWatch reports:

The prices paid by American consumers rose sharply again in March, mainly because of higher gasoline and grocery costs, according to the latest government data.

The consumer price index rose 0.5% last month, the Labor Department reported Friday. The so-called core rate rose a lesser 0.1%.

Economists surveyed by MarketWatch had expected CPI, which tracks inflation at the retail level, to rise by 0.5% overall, or by 0.2% on a core basis...

Consumer prices have climbed 2.7% over the past 12 months, the biggest increase since December 2009. As recently as November the 12-month inflation rate was just 1.1%...

Core consumer prices, meanwhile, have risen at a much slower pace of 1.2% over the past year, but the 12-month rate has doubled since last October.

Inflation has risen as capacity utilisation hit its highest level in almost 3 years in March. From MarketWatch:

U.S. industrial production rose a solid 0.8% in March, with broad-based gains across sectors, the Federal Reserve reported Friday...

Capacity utilization – a gauge of slack in the economy – jumped to 77.4% in March from 76.9% in February. This is the highest level since July 2008 but still below the average rate of 80.4% from 1972 through 2010.

Rising inflation did not prevent consumer confidence from improving in April. MarketWatch reports:

Consumer sentiment rose in April as worries about the impact of surging gasoline prices receded slightly, analysts said Friday.

The Thomson Reuters/University of Michigan survey of U.S. consumers’ sentiment hit 69.6 in its preliminary reading for April, up from 67.5 for March.

US producer prices rise, Singapore tightens monetary policy

Bloomberg reports increases in producer prices and jobless claims in the US:

Wholesale costs in the U.S. rose 0.7 percent in March, led by higher prices for energy, light trucks and passenger cars.

The increase in the producer-price index was smaller than forecast as food prices unexpectedly dropped for the first time since August, Labor Department figures showed today in Washington. The median projection in a Bloomberg News survey was for a 1 percent gain. The so-called core measure, which excludes volatile food and energy costs, increased 0.3 percent, more than estimated...

Another Labor Department report today showed more Americans unexpectedly filed first-time claims for unemployment insurance last week, reflecting greater-than-normal volatility at the end of the quarter. Applications for jobless benefits rose 27,000 in the week ended April 9 to 412,000, the most in two months...

Compared with a year earlier, companies paid 5.8 percent more for goods last month after a 5.6 percent rise in February.

Core wholesale prices climbed 1.9 percent in the 12 months ended in March, up from a 1.8 percent increase the prior month and the biggest year-over-year gain since August 2009.

With signs of inflation picking up in the US, Richmond Fed President Jeffrey Lacker is suggesting that it may be time to start tightening monetary policy. From Bloomberg:

Federal Reserve Bank of Richmond President Jeffrey Lacker said policy makers were too slow to withdraw monetary stimulus last decade and should tighten credit this time before inflation picks up too much.

“Four years of 3 percent inflation may not have been the worst of all possible outcomes, but I do not consider it a success,” Lacker said today in a speech in Baltimore, referring to the period from 2004 to 2007. “I hope we do better this time.”

Lacker is in the minority among Fed officials though.

Lacker is among a minority of Fed policy makers who have indicated they may favor a move this year to start reversing record monetary stimulus, while Chairman Ben S. Bernanke’s top lieutenants support keeping near-zero interest rates in place to help reduce unemployment...

Lacker was the fifth policy maker giving public remarks today. Fed Governor Elizabeth Duke said in Washington that the central bank is “absolutely committed” to price stability and will “do our job” to control inflation.

Narayana Kocherlakota, president of the Federal Reserve Bank of Minneapolis, said in Helena, Montana, that core inflation “is very low right now” and he doesn’t see many signs of price pressures.

Also, Fed Governor Daniel Tarullo said in Washington that he sees no need to either terminate the central bank’s program of large-scale asset purchases before it’s scheduled to end in June or to increase its size.

Federal Reserve Bank of Philadelphia President Charles Plosser, in a New York speech, restated his call for the central bank to adopt a formal inflation goal, saying it would be “particularly useful when we begin to unwind the extraordinary accommodation measures that we took to mitigate the crisis.”

In contrast to the US, Asian central banks have already been tightening monetary policy for some time, and the trend continued in Singapore on Thursday. From Bloomberg:

Singapore’s third monetary policy tightening in a year may prompt Asian central banks to allow further interest-rate and currency gains to prevent surging prices from hurting their economies.

The island’s dollar, the best-performing Asian currency outside Japan in the past year and the nation’s main tool to manage inflation, will be allowed to rise further, the Monetary Authority of Singapore said yesterday. While South Korea and Indonesia refrained from raising rates this month, policy makers signaled they will take steps to curb price gains if needed.

“MAS remains well ahead of the curve after aggressive moves last year,” said Vishnu Varathan, an economist in Singapore at Capital Economics (Asia) Pte. “The other central banks have to ask themselves how much tightening they want to do and how soon they want to do it. There’s still some feet- dragging and they can’t be seen hesitating too much as it will send the wrong signals to the market.”

Actually, even Singapore can't be said to be ahead of the curve in tightening considering the GDP growth data and inflation forecast that were also released on Thursday.

The island’s gross domestic product grew 23.5 percent last quarter from the previous three months, more than twice the pace economists forecast, according to preliminary estimates from the trade ministry yesterday. Earnings at Singapore companies including lender DBS Group and property developer City Developments Ltd. have surged after the economy’s expansion boosted demand for loans and spurred home prices to a record...

Singapore’s consumer prices gained 5 percent or more in the first two months of 2011. The central bank said yesterday inflation may reach the upper end of its 3 percent-to-4 percent forecast range this year.

One currency that clearly has not appreciated as much as many would have liked is China's. Bloomberg reports that China's foreign exchange reserves have surged again.

China’s foreign-exchange reserves exceeded $3 trillion for the first time, highlighting global imbalances that Group of 20 finance chiefs aim to tackle at meetings in Washington.

China’s currency holdings, the world’s biggest, swelled by $197 billion in the first quarter to $3.04 trillion, the central bank said yesterday. New loans were a more-than-estimated 679.4 billion yuan ($104 billion) in March, it said.

US president plans deficit cut amid global economic growth

The US president has proposed a plan to cut the budget deficit. Bloomberg reports:

President Barack Obama vowed to cut $4 trillion in cumulative deficits within 12 years through a combination of spending cuts and tax increases, setting the stage for a fight with congressional Republicans over the nation’s priorities.

In presenting his long-term plan for closing the federal budget shortfall, Obama set a target of reducing the annual U.S. deficit to 2.5 percent of gross domestic product by 2015, compared with 10.9 percent of GDP projected for this year. He reiterated his support for overhauling the tax code to lower rates while closing loopholes and ending some breaks to increase revenue.

This comes as another Bloomberg report shows the US economy continuing to improve.

Sales at U.S. retailers rose in March for a ninth consecutive month, easing concern that the jump in food and fuel costs would cause consumers to retrench.

Purchases increased 0.4 percent following a 1.1 percent February gain that was larger than previously estimated, Commerce Department figures showed today in Washington...

The Federal Reserve said the economy grew at a “moderate” pace in February and March, with the job market showing improvement in most regions.

“While many districts described the improvements as only moderate, most districts stated that gains were widespread across sectors,” the central bank said in its Beige Book report...

Job openings rose by 352,000 in February, the biggest gain since December 2004, the Labor Department said today. At 3.09 million, the number of positions waiting to be filled was the highest since September 2008.

Another report from the Commerce Department also showed inventories rose 0.5 percent in February after a revised 1 percent gain in January that was larger than initially estimated. The amount of goods on hand at retailers compared to sales dropped to the lowest level on record, indicating merchants will be placing more orders to rebuild stocks, contributing to growth and helping keep manufacturing as the expansion’s frontrunner.

The UK economy is also showing signs of improvement, with Reuters reporting a fall in the jobless rate.

The rate of unemployment fell unexpectedly in the three months to February, and employment rose, official data showed on Wednesday, in a sign that companies are feeling more confident about hiring...

The Office for National Statistics said the number of people without a job on the broad ILO measure fell by 17,000 in the three months to February to 2.480 million. That took the jobless rate down to 7.8 percent, below forecasts for a reading of 8.0 percent. It was the first fall in the jobless level and rate since last September.

In a further sign of improvement in the labour market, the number of people in employment rose by 143,000 in the three months to February -- the biggest increase since the three months to September 2010.

Another Reuters report showed that consumer confidence improved in March.

Consumer confidence recovered only somewhat in March from the record low hit in the previous month, a survey showed, providing little relief for retailers suffering from consumers' reluctance to spend.

Nationwide Building Society's consumer confidence index rose to 44 from 39 in February, the group said on Thursday. The February number was revised up 1 point, but it was still the lowest in the survey's history.

Meanwhile, in the euro area, Bloomberg reports that industrial production accelerated in February.

European industrial production growth accelerated in February, led by demand for intermediate and capital goods, indicating that the economy is gathering strength.

Production in the 17-member euro area rose for a fifth straight month, increasing 0.4 percent from January, when it advanced 0.2 percent, the European Union’s statistics office in Luxembourg said today. Economists forecast a gain of 0.8 percent, the median of 34 estimates in a Bloomberg News survey showed. Production jumped 7.3 from February 2010.

The economic outlook is less positive for Japan, though. From AFP/CNA:

Japan cut its assessment of the economy for the first time in six months after the devastating March 11 earthquake and tsunami and the resulting nuclear crisis, it said Wednesday.

The move came after the Bank of Japan last week downgraded its view of an economy ravaged by the quake and the monster wave it unleashed, which destroyed entire towns and left more than 28,000 dead or missing.

"The economy was picking up, but it has shown weak signs recently due to the impact of the Great East Japan Earthquake," the Cabinet Office said in its monthly economic assessment. "It remains in a severe condition."

Elsewhere in Asia, though, the party goes on, not least in Hong Kong, where property prices are at a new high. AFP/CNA reports:

Hong Kong's financial chief said Wednesday that overall property prices had passed their 1997 peak in February and would look at introducing more measures to cool the city's red-hot market.

John Tsang's comments to lawmakers came as he outlined plans to boost land supply in the city in response to rising public anger over soaring house prices, which have become a major headache for officials...

Luxury home prices topped their pre-Asian crisis peak in October, official data showed last year. Average luxury home prices in August were HK$142,249 ($18,300) per square metre, compared with around HK$122,500 before the 1997 crisis.

He added that property prices had increased 7.2 percent in the first two months of this year.

Tsang said the rise was caused by low interest rates, despite the fact that speculation, a major driver of prices previously, had slowed down.

And in South America, Chile's central bank has seen the need to raise interest rates again. From Bloomberg:

Chilean policy makers raised the benchmark interest rate by a half-point for the second straight month today as economic growth accelerates and consumer prices threaten to exceed central bank targets this year.

The five-member policy board, led by bank President Jose De Gregorio, raised the overnight rate by a half-point to 4.5 percent, matching the forecast of 19 of 21 economists surveyed by Bloomberg. Two analysts forecast that the central bank would raise rates by a quarter-point to 4.25 percent. It was the tenth rate increase in 11 months for the South American country.

Chile hastened the pace of rate increases in March to contain the effect of energy price gains on inflation forecasts. Policy makers today sustained that tempo as inflation surpasses the mid-point of the bank’s target and the economy accelerates toward what could be its fastest annual pace in more than a decade.

US, UK trade deficits shrink

The US trade deficit shrank in February. AFP/CNA reports:

The US trade deficit narrowed in February after hitting a seven-month high in January, thanks to a drop in imports in part due to China's new year holidays, official data showed on Tuesday.

The trade gap fell to a seasonally-adjusted US$45.8 billion from a revised US$47.0 billion in January, the Commerce Department said...

The sharp drop in the US trade gap in February was led by a 1.7 per cent drop in imports from the prior month. US exports also fell, by 1.4 per cent...

The politically-sensitive trade gap with China shrank sharply, to US$18.84 billion from US$23.27 billion in January.

While imports shrank in February, import prices continued their rising trend in March. Reuters reports:

U.S. import prices rose more than expected in March to post their largest increase in more than 1-1/2 years, driven by a surge in imported petroleum costs and higher food prices, a government report showed on Tuesday.

Overall import prices jumped 2.7 percent, a sixth straight month of gains, the Labor Department said. The increase outstripped economists' forecasts for a 2.2 percent increase and followed a 1.4 percent rise in February.

The UK also saw a narrower trade deficit in February. Reuters reports:

The ONS said Britain's total global trade deficit fell to 2.443 billion pounds in February from 3.858 billion pounds in January, driven by an unexpected fall in the deficit for goods.

Other UK data in the report were mixed.

Inflation eased in March for the first time since last summer as grocers cut food prices, reducing the chance of a Bank of England rate hike in May and giving it leeway to support the still shaky economy.

The unexpected drop in annual inflation to 4.0 percent from 4.4 percent in February -- together with a sharp decline in retail sales -- gives ammunition to those policymakers who want to see the economy on a solid footing before tackling inflation...

The British Retail Consortium said total sales, a measure which includes new floorspace, fell by 1.9 percent in March , the worst drop since the BRC began collecting the data in 1995. Like-for-like sales were 3.5 percent lower on the year.

German data on Tuesday were negative. Bloomberg reports:

German investor confidence fell more than economists forecast in April after the European Central Bank raised interest rates to curb inflation.

The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict developments six months in advance, declined to 7.6 from 14.1 in March. Economists expected a drop to 11.3, according to the median of 36 estimates in a Bloomberg News survey...

Still, German inflation unexpectedly accelerated to 2.3 percent last month after oil prices surged to more than $110 a barrel, a Federal Statistics Office report showed today.

IMF sees global recovery gaining strength

The IMF has released its latest World Economic Outlook.

From the executive summary of the report:

The recovery is gaining strength, but unemployment remains high in advanced economies, and new macroeconomic risks are building in emerging market economies. In advanced economies, the handoff from public to private demand is advancing, reducing concerns that diminishing fiscal policy support might cause a “double-dip” recession. Financial conditions continue to improve, although they remain unusually fragile. In many emerging market economies, demand is robust and overheating is a growing policy concern. Developing economies, particularly in sub-Saharan Africa, have also resumed fast and sustainable growth. Rising food and commodity prices pose a threat to poor households, adding to social and economic tensions, notably in the Middle East and North Africa. Oil price increases since January 2011 and information on supply, including on spare capacity, suggest that the disruptions so far would have only mild effects on economic activity. An earthquake in Japan has exacted a terrible human toll. Its macroeconomic impact is projected to be limited, although uncertainty remains elevated. Overall, with the recovery stronger on the one hand but oil supply growth lower on the other, projections for global real GDP growth in 2011–12 are little changed from the January 2011 WEO Update. But downside risks have risen.

Some GDP projections in the report:

	Year over year percent change
			Projections
	2009	2010	2011	2012
World output	-0.5	5.0	4.4	4.5
Advanced economies	-3.4	3.0	2.4	2.6
United States	-2.6	2.8	2.8	2.9
Euro area	-4.1	1.7	1.6	1.8
Japan	-6.3	3.9	1.4	2.1
Emerging economies	2.7	7.3	6.5	6.5
China	9.2	10.3	9.6	9.5

Japan's machinery orders fall, China's trade balance returns to surplus

Data released on Monday showed that Japan's machinery orders had been weak even before the earthquake struck one month ago. From AFP/CNA:

Japan's core private-sector machinery orders, a leading indicator of corporate capital spending, fell by more than expected in the month before a massive earthquake, data showed on Monday.

Core machinery orders fell 2.3 per cent from a month earlier in February, with the bigger-than-expected fall during pre-quake conditions raising concerns about the severity of the March 11 quake's impact in the months to come.

China, though, reported a return to a trade surplus in March. AFP/CNA reports:

China said Sunday it had returned to a trade surplus in March after the world's number two economy posted its first trade deficit in nearly a year in February.

Customs data showed a trade surplus of $140 million in March after February's deficit of $7.3 billion -- the country's first since March 2010.

Exports in March rose 35.8 per cent from the same month a year earlier, up from February's 2.4 per cent rise.

Imports rose 27.3 per cent, up from 19.4 per cent in February.

Japanese service sector sentiment plunges

This is the clearest indication yet of the negative impact of the earthquake on Japan's economy. From Reuters:

Japan's service sector sentiment index plunged to a two-year low in March, a Cabinet Office survey showed on Friday, with confidence hurt by the devastating earthquake and tsunami on March 11 and a subsequent nuclear crisis.

The survey of workers such as taxi drivers, hotel workers and restaurant staff -- called "economy watchers" for their proximity to consumer and retail trends -- showed their confidence about current economic conditions fell to 27.7 in March from 48.4 in February...

The outlook index, indicating the level of confidence in future conditions, was at 26.6, down from 47.2 in February.

In somewhat more encouraging news, the Japanese auto industry seems ready to get back on its feet. From AFP/CNA:

Japanese automakers Toyota and Nissan said on Friday they will restart all domestic assembly plants from around mid-April after production was halted due to the nation's biggest recorded earthquake.

In doing so they will join rival Honda in resuming production, although all three have warned output will be at 50 percent of usual levels.

ECB raises rates

As expected, the ECB raised interest rates on Thursday. Reuters reports:

The European Central Bank raised interest rates for the first time since the 2008 financial crisis on Thursday and signaled it was ready to tighten policy further if needed to check rising prices.

ECB President Jean-Claude Trichet used phrasing at a news conference traditionally seen as associated with further swift hikes, saying the bank's monetary policy "remains accommodative" and that it will "monitor very closely" price risks.

But he stressed the ECB had not decided that Thursday's move -- a 25 basis point rise in its main refinancing rate to 1.25 percent -- was the first in a series of moves, reassuring markets it was not about to embark on an aggressive tightening policy that could choke the euro zone's struggling periphery.

The rate hike came even though core inflation in the euro area has remained subdued so far. From Reuters:

Domestically generated inflation in the euro zone is subdued, with the single currency bloc's recovery on track, but economic growth comparatively weak and unbalanced, the European Commission said on Thursday.

In its quarterly report on the 17-nation euro zone, the European Union's executive said that the main reason for the acceleration of headline inflation -- to an annual rate of 2.6 percent in March -- was higher commodity and fuel prices.

But Thursday did bring yet more positive economic data from Germany. Bloomberg reports:

German industrial production rose three times as much as economists forecast in February, adding to signs economic growth accelerated in the first quarter.

Output increased 1.6 percent from January, when it gained 2 percent, the Economy Ministry in Berlin said today. Economists had forecast a 0.5 percent gain for February, according to the median of 33 estimates in a Bloomberg News survey. In the year, production rose 14.8 percent when adjusted for working days.

In the UK, the Bank of England left its benchmark interest rate and bond-purchase programme unchanged.

The Bank of Japan also left interest rates unchanged on Thursday but announced a new lending programme. AFP/CNA reports:

The Bank of Japan (BoJ) on Thursday warned that the economy faced "strong downward pressure" due to the March 11 earthquake and tsunami, and unveiled a one trillion yen ($11.7 billion) lending programme.

It left its key rate unchanged at between zero and 0.1 per cent.

The new lending programme offers cheap one-year loans to ensure financial institutions in disaster-hit areas can meet demand for post-quake reconstruction funding, the bank said in a statement.

But Japan's quake-related problems appear never-ending as it got hit by yet another earthquake on Thursday. AFP/CNA reports:

A powerful 7.1-magnitude earthquake late on Thursday hit the same area of Japan that was ravaged by disaster a month ago, seismologists said, prompting a local tsunami alert that was later cancelled.

Power was cut to parts of the northeast of the country, much of which is still struggling with the effects of the monster tsunami that roared ashore four weeks ago.

The new quake caused a handful of injuries, national broadcaster NHK said, but there were no reported deaths.

Portugal to ask for EU financial aid

This had been looking increasingly likely for some time. From Bloomberg:

Portugal will seek a bailout from the European Union after the nation’s political crisis helped push borrowing costs to record levels and forced it to become the third euro-region country to seek a rescue.

“I tried everything but we came to a moment that not taking this decision would bring risks we can’t afford,” Prime Minister Jose Socrates said in a televised statement from Lisbon late yesterday. “The government decided to make the European Commission a request for financial aid.”

Portugal is seeking a rescue that may be worth as much as 75 billion euros ($107 billion), according to two European officials with knowledge of the situation. Bond yields have surged since Socrates offered to resign on March 23 after parliament rejected proposed budget cuts, leaving him in charge of a caretaker government with limited powers until a June 5 election.

Economic reports out of Europe on Wednesday were mixed.

Bloomberg reports a jump in German factory orders in February.

German factory orders rose almost five times as much as economists forecast in February, indicating growth in Europe’s largest economy gathered pace in the first quarter.

Orders, adjusted for seasonal swings and inflation, gained 2.4 percent from January, when they jumped 3.1 percent, the Economy Ministry in Berlin said in a statement today. Economists had forecast a 0.5 percent increase for February, according to the median of 33 estimates in a Bloomberg News survey. From a year ago, orders rose 20.1 percent.

However, Reuters reports a fall in UK industrial production in February.

Weak industrial output figures for February raised doubts about the strength of Britain's economic upturn on Wednesday, confusing the outlook for monetary policy following very strong services sector numbers...

The Office for National Statistics said that industrial output contracted by 1.2 percent in February after downwardly revised growth of 0.3 percent in January. Economists had forecast a 0.4 percent increase in industrial output over the month, yet this was the biggest fall since August 2009...

Other data on Wednesday showed a 7.9 percent annual fall in car sales and a 2.9 percent yearly fall in house prices, the biggest drop since October 2009.

China raises interest rates

Japan may be heading into a recession because of the recent earthquake but over in China, policy-makers are still fighting inflation. AFP/CNA reports:

China's central bank said Tuesday it would raise one-year deposit and lending rates by 25 basis points in its latest effort to curb rampant lending and bring inflation under control.

The People's Bank of China said the interest rate hikes -- the fourth since late last year -- would take effect Wednesday.

The latest move takes the one-year deposit and lending rates to 3.25 percent and 6.31 percent respectively.

In contrast, the Federal Reserve is unlikely to be in any rush to tighten US monetary policy. Bloomberg reports Tuesday's US economic news:

Service industries in the U.S. grew less than forecast in March, showing higher fuel costs are raising concern sales will cool.

The Institute for Supply Management’s index of non- manufacturing companies fell to 57.3 from 59.7 in February, lower than the 59.5 median forecast of economists surveyed by Bloomberg News. Readings greater than 50 signal growth...

While the Fed’s decision to continue their $600 billion bond-purchase program was unanimous, minutes of the March 15 meeting showed a few of the 10 voting members of the central bank’s policy-making committee thought evidence of a stronger recovery, higher inflation and rising inflation expectations “could make it appropriate to reduce the pace or overall size” of the plan. “Several others” said they “did not anticipate making adjustments,” the report showed.

Meanwhile, though, the UK saw an unexpected acceleration in service sector activity in March. Reuters reports:

The service sector activity unexpectedly logged its fastest pace of growth in over a year in March, a survey showed, pointing to a 0.8 percent expansion in the economy as a whole in the first three months of 2011.

The Markit/CIPS services PMI index, a measure of activity growth as reported by purchasing managers, surged to a 13-month high of 57.1 in March from an unrevised 52.6 in February, beating even the most optimistic analyst's forecast.

The euro area also saw an unexpected acceleration in service sector activity in March. Bloomberg reports:

Growth in Europe’s services and manufacturing industries accelerated more than initially estimated in March, led by Germany and France.

A composite index based on a survey of euro-area purchasing managers in the 17-nation euro region in both industries fell to 57.6 from 58.2 in February, London-based Markit Economics said today. That’s above an initial estimate of 57.5 released on March 24. A reading above 50 indicates growth.

A gauge of services advanced to 57.2 from 56.8 in February, Markit said. An indicator of manufacturing dropped to 57.5 from 59 the previous month, it said on April 1.

However, the euro area was also hit by some bad news on Tuesday. Bloomberg reports a fall in retail sales in February.

European retail sales unexpectedly declined in February as surging energy costs prompted consumers to cut back spending.

Sales in the 17-nation euro region slipped 0.1 percent from January, when they advanced 0.2 percent, the European Union’s statistics office in Luxembourg, Eurostat, said today. Economists forecast a 0.1 percent gain, the median of 18 estimates in a Bloomberg News survey showed. Sales rose 0.1 percent on the year.

And Portugal's credit rating has been downgraded again. Bloomberg reports:

Portugal’s credit rating was cut by Moody’s Investors Service for the second time in three weeks amid expectations it will be unable to avert a European bailout.

Moody’s downgraded Portugal’s long-term government bond ratings by one level to Baa1 from A3, and said it’s considering another reduction. Today’s move put the country at the same level as Ireland, Russia, Mexico and Thailand. Fitch Ratings on April 1 downgraded Portugal three notches to BBB-, the lowest investment grade, and kept the rating on “watch negative.”

Japanese business confidence falls after quake, India on the rise

The latest report from the BoJ shows rather unsurprisingly that Japanese business confidence fell after the earthquake. AFP/CNA reports:

Japanese business confidence in the outlook for the next three months has plunged following the March 11 earthquake-tsunami and subsequent nuclear crisis, the Bank of Japan said Monday.

The central bank re-released Friday's quarterly Tankan survey to show the breakdown in the replies it received before and after the disasters...

The BoJ's report on Friday showed business sentiment among large manufacturers improving to "six" in March from "five" in December, but only 23.6 per cent of responses were received after March 11.

Monday's survey illustrated the views of firms polled after the quake, which showed the sentiment index among those major manufacturers fall to "minus two" for the April-June period.

But Japan is a declining economic power anyway, mainly due to its demographics. The true rising power of the future is India. Shekhar Aiyar and Ashoka Mody explain why:

An increase in a country’s working-age ratio can raise its rate of economic growth, resulting in a “demographic dividend”. Workers are more productive and save more than dependants. In addition, the fertility decline that is the source of the changed age structure may act directly to induce a larger female labour supply (Bailey 2006) and increase attention to primary education and health (Joshi and Schultz 2006). Cross-country evidence for such a dividend is strong, but contingent on favourable economic policy environments (Bloom and Canning 2004).

India, a demographic latecomer relative to the mature industrial economies and East Asia, is in the midst of a major transition in age structure. The country’s working-age population as a share of the total population has risen substantially over the last three decades. This process is set to continue over the next 30 years or so, during which India will gain about 300 million workers (UN 2009). During these years, India will be – by an order of magnitude – the largest single contributor to the global workforce. By contrast, the working-age ratio in China is projected to fall substantially in the decades ahead. For those engaged in the sport of India-China comparisons, these diverging trends offer the best hope for India to catch up with its neighbouring powerhouse (Kelkar 2004, Economist 2010).

US inflation pressures rising

Data last week showed that inflation in the United States is rising.

The Commerce Department reported on Monday that the personal consumption expenditures price index rose 0.4 percent in February after rising 0.3 percent in January. Excluding food and energy, prices rose 0.2 percent in February, the same amount as in January.

The 12-month rate of increase of the PCE price index remained relatively low though. The overall index was up 1.6 percent in February from a year ago while the price index excluding food and energy was up 0.9 percent.

However, other data last week showed that inflation pressures are rising.

On Friday, the Institute for Supply Management reported that its index for prices in the manufacturing sector rose to 85.0 in March from 82.0 in February.

Also on Friday, the Labor Department reported that the US economy added 216,000 jobs in March and the unemployment rate fell to 8.8 percent from 8.9 percent in February. The unemployment rate has fallen a full percentage point since November and is now well down from its peak of 10.1 percent in October 2009. This indicates that resource slack in the economy is diminishing and could mean rising inflation pressure.

The Economic Cycle Research Institute also reported on Friday that its US future inflation gauge rose to 104.9 from 103.6 in February. “With the USFIG rising to a 31-month high, underlying inflation pressures are steadily building,” ECRI Chief Operations Officer Lakshman Achuthan said in the report.

Federal Reserve officials have made it clear that they are aware of the rising inflation pressures. Over the past week, several officials have said in speeches that it is appropriate for the Fed to start considering the removal of monetary stimulus. St Louis President James Bullard, who was instrumental in awakening analysts to the possibility of the Fed embarking on the securities-purchase programme that has since become known as QE2, even said that the Fed should consider terminating the latter early.

If the Fed does remove monetary stimulus, though, it is not likely to do so ahead of the European Central Bank. The ECB meets this Thursday and is almost certain to raise interest rates after hints by its officials over the past month or so of such a move, as well as a report last week that showed that inflation in the euro area rose to 2.6 percent in March from 2.4 percent in February.

US unemployment rate drops to 2-year low

Data from the US on Friday show that recovery in employment and growth in manufacturing continued in March. Bloomberg reports:

The U.S. unemployment rate unexpectedly dropped to a two-year low of 8.8 percent in March as employers created more jobs than forecast, adding to evidence of a recovery in the labor market.

Payrolls rose by 216,000 workers last month after a 194,000 gain the prior month, the Labor Department said today in Washington. Economists projected a March increase of 190,000, according to the median estimate in a Bloomberg News survey...

Manufacturing expanded in March at about the same pace as February, the strongest month since May 2004. The Tempe, Arizona-based Institute for Supply Management said its manufacturing index was 61.2 compared with 61.4 in February. Readings greater than 50 signal expansion. The median forecast of 79 economists surveyed by Bloomberg was 61.1.

However, construction spending in the US fell again in February. Bloomberg reports:

Construction spending in the U.S. fell more than forecast in February, indicating the economic recovery has not yet spread to the building industry.

The 1.4 percent drop was the third in a row and brought the value of all projects down to a $760.6 billion annual rate, the lowest since October 1999, Commerce Department figures showed today in Washington. The median estimate of economists in a Bloomberg survey called for a 0.2 percent decline.

Also showing falling unemployment on Friday was the euro area. Bloomberg reports:

European unemployment fell in February as companies from Germany to Italy added workers to meet reviving global demand, offsetting job cuts in debt- burdened Spain.

The 17-nation euro region’s seasonally adjusted jobless rate fell to 9.9 percent from a revised 10 percent in January, the European Union statistics office in Luxembourg said in an e- mailed statement today. At 20.5 percent, Spain had the highest jobless rate and the Netherlands the lowest, with 4.3 percent.

Manufacturing in the euro area, though, disappointed. Again from Bloomberg:

European manufacturing growth slowed more than initially estimated in March as output weakened from Germany to Italy and France, suggesting the euro-area economy is losing some strength.

A gauge of manufacturing in the 17-nation euro region fell to 57.5 from 59 in February, London-based Markit Economics said in an e-mailed report today. That’s below an initial estimate of 57.7. A reading above 50 indicates growth. A gauge of output growth in Germany, the region’s biggest economy, fell to 60.9 from 62.7, Markit said.

The UK manufacturing PMI also came out weaker than expected. Reuters reports:

British manufacturing activity growth weakened more than expected in March after the inflow of orders slowed sharply, but firms still ramped up prices at a record rate to cover rising costs, a survey showed on Friday.

The Markit/CIPS manufacturing PMI headline index fell to a five-month low of 57.1 in March from a downwardly revised 60.9 in February. Analysts had expected a more modest easing to 60.6.

China did report an acceleration in manufacturing activity though. AFP/CNA reports:

Manufacturing activity in China rebounded in March after a fall the previous month, official and independent data showed on Friday, giving Beijing more leeway to take new measures to rein in inflation.

The purchasing managers index (PMI) rose to 53.4 in March from 52.2 in February, after three consecutive months of slowdowns, the China Federation of Logistics and Purchasing (CFLP) said in a statement...

And the HSBC China Manufacturing PMI indicated a milder rebound, bouncing back slightly to 51.8 in March from 51.7 in February, the British banking giant said in a statement.

Also out on Friday was a largely irrelevant Tankan survey report from Japan. AFP/CNA reports:

Japanese business confidence improved in March, data showed Friday, but the impact of the nation's biggest ever earthquake and a devastating tsunami was not fully reflected in the report...

Friday's report showed that large manufacturers' business confidence reading improved to 'six' from 'five' in the previous quarter...

The BoJ will on Monday release data reflecting responses received from February 24 to March 11, and responses received from March 12 to March 31.

Taiwan tightens, eurozone inflation fastest in two years

Monetary policy tightening continues in Asia, the latest move coming from Taiwan on Thursday. AFP/CAN reports:

Taiwan's central bank raised its key interest rate on Thursday to curb inflation and battle sky-rocketing property prices.

The bank hiked the discount rate by 12.5 basis points to 1.75 per cent faced with inflationary pressure notably from rising commodity prices.

The euro area looks set to join the tightening camp after the latest inflation report on Thursday. From Bloomberg:

European inflation unexpectedly accelerated to the fastest in more than two years in March as European Central Bank policy makers prepared to raise interest rates to fight increasing price pressures.

Inflation in the 17-nation euro region quickened to 2.6 percent from 2.4 percent in February, the European Union’s statistics office in Luxembourg said today in an initial estimate. That’s the fastest since October 2008 and exceeds the ECB’s 2 percent limit for a fourth month. Economists forecast inflation to hold at 2.4 percent, the median of 32 estimates in a Bloomberg News survey showed.

However, tightening for the ECB does not extend to its credit rating threshold for debt used as collateral. From Bloomberg:

The European Central Bank said it will accept all debt instruments backed by the Irish government as collateral against ECB loans as the country attempts to shore up its banking industry.

The Frankfurt-based ECB said Ireland’s commitment to recapitalize its banks and comply with a consolidation program prescribed by the European Union and International Monetary Fund must be assessed “positively.” The suspension of the minimum credit-rating threshold is based on “this positive assessment of the program,” a capital increase for Ireland’s four banks and the decision to “deleverage and downsize the banking sector,” the ECB said.

Irish regulators today instructed four banks to raise 24 billion euros ($34 billion) in additional capital following stress tests on their businesses, and the government said it plans to merge two of the lenders. Allied Irish Banks Plc, the biggest lender during a decade-long economic boom, requires 13.3 billion euros, the central bank in Dublin said.

The news from the US on Thursday were somewhat more positive. Bloomberg reports:

Fewer Americans filed claims for jobless benefits last week and consumer confidence stabilized, a sign the world’s largest economy is weathering the jump in commodity prices heading into the second quarter.

The number of applications for unemployment insurance payments fell by 6,000 to 388,000 in the week ended March 26, a one-month low, Labor Department figures showed today in Washington. The Bloomberg Consumer Comfort Index rose to minus 46.9 last week from a seven-month low of minus 48.9...

The Institute for Supply Management-Chicago Inc. said today its business barometer fell to 70.6 this month from February’s 71.2 reading that was the highest since July 1988. The index exceeded the 69.9 median forecast of economists surveyed by Bloomberg. Figures greater than 50 signal expansion...

Bookings for manufacturers’ goods decreased 0.1 after a revised 3.3 percent gain in January that was larger than previously reported, according to figures from the Commerce Department. Excluding transportation equipment, demand rose, boosted by a pickup in non-durable goods.