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Pre-Market briefing: "Fed say China's economic growth will slow by 2030"

UK Market Snapshot 

UK markets finished lower yesterday, after UK’s gross domestic product declined in the fourth quarter and risk appetite waned globally. Prudential dropped 4.3%, following a fine worth £300 million for not intimating authorities about the takeover of the Asian arm of AIG. Schroders and British Land Co retreated 1.9% and 1.7%, respectively, after the company’s shares went ex dividend. International Consolidated Airlines Group declined 2.3%, after it increased its bid for Spain’s Vueling. ICAP tumbled 6.3%, after it stated that its annual profits might decline by 13%. On the flipside, TUI travel rallied 4.0%, after it indicated a bullish business outlook and stated that it expects underlying operating profit growth to be towards the top end of its guidance of 7-10%. Lloyds Banking Group jumped 2.2%, after a broker reiterated its Buy rating on the stock, citing the company’s strong capital position. The FTSE 100 shed 0.2%, to close at 6,387.6, while the FTSE 250 slid 0.9%, to settle at 13,862.4. 

US Market Snapshot 

US markets closed mostly lower yesterday, amid worries about the debt crisis in the euro zone and a decline in the US pending home sales. Apple dropped 2.0%, after a broker predicted that the company’s second and third quarter earnings might miss market expectations. Cliffs Natural Resources plunged 13.9%, following a broker downgrade to ‘Underweight’ from ‘Equal weight’. Dollar General declined 2.4%, following news that 30 millions of the company’s shares would be offered for sale in an underwritten secondary public offering. Best Buy dropped 2.4%, following a broker downgrade to ‘Sell’ from ‘Hold’. Bucking the trend, Humana and UnitedHealth Group jumped 3.0% and 1.7%, respectively, following reports that the US Medicare program has the authority to raise payments to insurers. The DJIA shed 0.2%, to settle at 14,526.2, while the NASDAQ advanced 0.1%, to close at 3,256.5. The S&P 500 slipped 0.1%, to settle at 1562.9. 

Europe Market Snapshot 

Other European markets finished lower yesterday, amid political unrest in Italy fuelling worries in the euro area. European Aeronautic Defence and Space Company declined 3.1%, after the Chief Executive of Lagardere SCA indicated that it would sell its 7.5% stakes in the company. Deutsche Bank sank 2.3%, after Standard & Poor’s stated that it would slash the rating on the company. Belgacom lost 2.4%, following news that the Belgian government is eyeing to sell stake in the company. Allianz SE dropped 2.2%, following news of its acquisition of the insurance business of the Turkish bank, Yapi & Kredi Bankasi AS. Safran retreated 1.5%, after the French government sold its 13 million shares in the company. The FTSEurofirst 300 index declined 0.4%, to close at 1,184.1. Among other European markets, the German DAX Xetra 30 slid 1.1%, to close at 7,789.1, while the French CAC-40 shed 1.0%, to settle at 3711.6. 

Asia Market Snapshot 

Markets in Asia are trading lower this morning, taking cues from the overnight decline in Wall Street, amid political unrest in Italy. In Japan, Mitsubishi Motors is trading 4.9% lower, following news of malfunctions in batteries which were manufactured in a joint venture with GS Yuasa Corp. Mizuho Financial Group, Sumitomo Mitsui Financial Group are trading 2.9% and 2.7%, lower, respectively. Exporters, Honda Motors and Toyota Motors are trading 2.1% and 1.9%, lower, respectively, as the Yen strengthened against the dollar. In Hong Kong, Bank of Communications, China Merchants and Bank of China are trading 4.3%, 3.7% and 2.2% lower, respectively. In South Korea, Kia Motors and Samsung Electronics are trading 1.4% and 0.1% lower, respectively. The Nikkei 225 index is trading 1.2% lower, at 12,340.8. Hang Seng index is trading 1.1% down, at 22,214.6, while the Kospi index is trading 0.3% lower, at 1,990.8. 

Commodity, Currency and Fixed Income Snapshots 

Crude Oil 

At 0430GMT today, Brent Crude Oil one month futures contract is trading a marginal 0.01% or $0.01 higher at $109.74 per barrel. Yesterday, the contract advanced 0.38% or $0.41, to settle at $109.73 per barrel, after a report indicated that refineries in the US boosted operating rates. Separately, the Energy Information Administration reported that the US crude inventories climbed 3.3 million barrel for the week ended 22nd March. 

Gold 

At 0430GMT today, gold futures contract is trading 0.04% or $0.7 lower at $1606.6 per ounce. Yesterday, the contract rose 0.63% or $10, to settle at $1607.3 per ounce, as discouraging news from the euro zone and a dip in the US pending home sales increased the demand for the safe haven gold. 

Currency 

At 0430GMT today, the EUR is trading at $1.2779 against the USD, marginally gaining 0.03%, ahead of euro zone unemployment data to be released later today. Yesterday, the EUR weakened 0.67% versus the USD, to close at $1.2775, amid political turmoil in Italy. 

At 0430GMT today, the GBP strengthened against the USD, slightly gaining 0.05%, to trade at $1.5135, ahead of UK’s Nationwide house price data to be released later today. Yesterday, the GBP weakened against the USD by 0.22%, to close at 1.5127, as the British economy contracted in the fourth quarter. Additionally, UK’s consumer confidence declined in the month of March. 

Fixed Income 

In the US, long term treasury prices rose, pushing the yields lower, after the nation’s pending home sales declined and as risk aversion increased following political turmoil in Italy. Yesterday, yield on 10-year notes fell 5 basis points to 1.87%, while yield on 2-year notes remained unchanged at 0.25%. Meanwhile, 30-year bond yield decreased 4 basis points to 3.09%. 

Key Economic News 

UK economy shrank in line with the initial estimate in 4Q FY2012 

The final data from the Office for National Statistics indicated that on a quarterly basis, the Gross Domestic Product (GDP) in the UK contracted 0.3% in the fourth quarter of 2012 (4Q FY2012), in line with the initial estimate and compared to a 1.0% growth recorded in the previous quarter. On an annual basis, the UK GDP rose 0.2% in 4Q FY2012, compared to a 0.3% rise previously estimated. 

UK current account deficit narrowed in 4Q FY2012 

The current account deficit in the UK narrowed to £14.0 billion in 4Q FY2012 from a revised deficit of £15.1 billion posted in the previous quarter. Market had expected the trade deficit to narrow to £12.5 billion in 4Q FY2012. 

UK business investment decreased less than initially expected in 4Q FY2012 

On a quarterly basis, total business investment in the UK fell 0.8% in 4Q FY2012, compared to a 1.2% decrease initially estimated. On a yearly basis, total business investment gained 0.8% in 4Q FY2012, compared to a 0.4% growth initially estimated, but lower than 5.1% growth recorded in 3Q FY2012. 

UK banks face capital shortfall of £25 billion, says BoE 

A report released by the Bank of England (BoE) stated that the lenders in the UK will have to raise around £25 billion by the end of this year to absorb possible losses from exposure to high-risk loan portfolios. The statement said that the Financial Policy Committee (FPC), set up to guard against any further financial crisis, has identified the capital deficit following an inquiry into banks' exposure to the sovereign debt crisis in the Euro-zone, the property market and other financial risks over a three-year period. The FPC said that the primary objective for UK banks should be to achieve a common equity tier-1 capital ratio of at least 7.0% of risk-weighted assets by the end of the year. 

Germany import price inflation rose in February 

On a monthly basis, the Import Price Index (IPI) in Germany rose 0.3% in February, following a 0.1% increase recorded in January. Market had expected the index to rise 0.2% MoM in February. Meanwhile, on an annual basis, the IPI declined 1.6% in February, in line with the market expectations and marking its second consecutive monthly decline following a 0.8% drop recorded in the previous month. At the same time, on a monthly basis, Export Price Index gained 0.1% in February, while on a yearly basis; index came in at 0.1% in February, from 0.3% recorded in January. 

German consumer confidence remained unchanged in April, indicates Gfk 

According to a survey conducted by GfK, the Consumer Confidence Index in Germany remained unchanged at a reading of 5.9 in April and in line with the market expectations. 

French GDP contracted in 4Q FY2012 

On a quarterly basis, the Gross Domestic Product (GDP) in France contracted 0.3% in the fourth quarter of 2012 (4Q FY2012), in line with the previous estimate and following a 0.2% expansion recorded in the previous quarter. Additionally, on an annual basis the final reading of French GDP contracted 0.3% in 4Q FY2012, in line with the previous estimate and compared to a 0.0% reading for the whole year. 

Euro-zone Leading Index rose modestly in February, indicates CB 

The Confidence Board reported that, the Leading Economic Index in the Euro-zone moved up to a reading of 106.5 in February, from 106.4 in January. Meanwhile, the Coincident Economic Index, which measures the current situation, dropped to a reading of 101.1 in February, from a reading of 101.2 recorded in the previous month. 

Euro-zone consumer confidence remained unchanged in March 

Consumer Confidence Index in Euro-zone came in at -23.5 in March, in line with market expectations, and unchanged from the previous month’s reading. Meanwhile, the Business Climate Index declined to a reading of -0.86 in March, from an upwardly revised reading of -0.72 recorded in February. Market had expected the index to drop to a reading of -0.79 in March. Additionally, the Economic Sentiment Index came in at 90 in March, down from 91.1 reported in the previous month and below the market expectations of 90.5. The Industrial Confidence Index fell to a reading of -12.5 in March, from a downwardly revised reading of -11.3 recorded in the prior month. Market had expected the index to fall to a reading of -12 in March. Also, the Services Confidence Index dropped to a reading of -6.7 in March, from a reading of -5.3 recorded in the previous month. Market had expected the index to drop to a reading of -6.5 in March. 

Swiss consumption indicator rose slightly in February 

The UBS bank reported that, the consumption indicator in Switzerland climbed to a reading of 1.26 in February, from a revised reading of 1.15 recorded in January. 

Switzerland's economic barometer declined in March, indicates KOF 

The KOF economic institute reported that, its economic barometer for Switzerland retreated to a reading of 0.99 in March, from a revised reading of 1.04 recorded in February. Market had expected the economic barometer to rise to a level of 1.04 in March. 

US MBA mortgage applications rebounded last week 

According to Mortgage Bankers Association (MBA), for the week ended 22 March 2013, mortgage application volume in the US, on a seasonally adjusted basis, rose 7.7% from one week earlier. Additionally, the refinancing demand for the week jumped 8.0% from the week before. 

US pending home sales declined less-than-expected in February, indicates NAR 

The National Association of Realtors (NAR) reported that, on a monthly basis, its Pending Home Sales Index in the US fell 0.4% to a reading of 104.8 in February, compared to a downwardly revised 3.8% growth to a reading of 105.2 anuary in the previous month. Market had expected the index to fall 0.3% MoM in February. On an annual basis, pending home sales rose 8.4% in February, marking its 22nd consecutive YoY growth. 

Fed's Kocherlakota repeats call for easier policy 

Minneapolis Fed President Narayana Kocherlakota reiterated his proposal for the Federal Reserve to pledge to keep rates extraordinary low so long as the unemployment rate remains above 5.5%, rather than the 6.5% target the central bank currently has. He forecasts the unemployment rate will only fall slowly, to around 7.5% in late 2013 and 7% in late 2014. In a speech in Edina, Kocherlakota said “The unemployment rate threshold is not a trigger for FOMC action.” He also said the committee’s guidance provides “a great deal of protection against undue inflationary pressures.” 

QE tapering “Could Emerge Before Long”, says Fed's Pianalto 

Federal Reserve Bank of Cleveland President Sandra Pianalto said, “Our asset purchases have been beneficial in increasing economic growth, lowering unemployment, and promoting price stability.” He further stated that “If the labor market data continue to be solid, and my economic outlook remains favorable, I could then see a basis for slowing the pace of asset purchases.” He added, “Even at a reduced pace, the Federal Reserve would still be adding accommodation, continuing to provide meaningful support to economic growth and job creation.” 

Fed’s Rosengren backs bond buying through ’FY13 to lift growth 

Boston Federal Reserve President Eric Rosengren said that he is more confident in the state of the economy than he has been in half a decade. He further stated that he wants to continue the central bank’s bond purchases through year’s end and raise or lower the pace in response to economic data. The world and economy continue to face risks including those posed by gridlock in Washington, Rosengren acknowledged. Rosengren said, Fed policy should pursue “faster economic growth and a more rapid improvement in the unemployment rate,” “We should continue our large-scale asset purchases of Treasury and mortgage-backed securities through this year -- although the amount may need to be adjusted up or down, depending on how the economic situation evolves.” 

Canadian consumer prices rose more-than-expected in February 

On an annual basis, Consumer Price Index (CPI) in Canada rose 1.2% in February, marking its biggest gain since October 2012 and following a 0.5% increase recorded in the previous month. Market had expected the CPI to rise 0.8% YoY in February. On a monthly basis, CPI rose 1.2% in February, marking its biggest monthly gain since January 1991 and following a 0.1% rise recorded in the previous month. Market had expected the index to rise 0.7% MoM in February. Meanwhile, on a yearly basis, the Bank of Canada (BoC) CPI increased 1.4% in February, following a 1.0% growth in January. 

Japan retail sales dropped more-than-expected in February 

The Ministry of economy, trade and industry reported that, on a yearly basis, retail sales in Japan fell 2.3% in February, following a 1.1% fall recorded in January. Market had expected the retail sales to drop 1.8% YoY in February. On a seasonally adjusted monthly basis, retail sales climbed 1.6% in February, following a downwardly revised drop of 0.2% reported in January. Market had expected the retail sales to rise 0.5% MoM in February. Meanwhile, sales from large retailers contracted 3.7% to ¥1.424 trillion in February, following 3.5% drop recorded in the previous month. Market had expected the sales from large retailers to drop 1.5% MoM in February. 

Japan investors were net sellers of foreign stocks last week 

The Ministry of Finance reported that the Japanese investors sold a net ¥490.5 billion in foreign bonds and notes in the week ended 22 March 2013. Japanese investors also sold a net ¥640.2 billion of foreign stocks. The ministry further stated that the foreign investors sold a net ¥975.2 billion in Japan bonds and notes and also sold a ¥267.6 billion of Japanese stocks in the week ended 22 March 2013. 

Fed say China's economic growth will slow by 2030 

A new study by the Federal Reserve reports that China's growth may slow drastically by 2030. According to the Fed, declining productivity and an aging population will be the causes of the booming country's eventual decline in economic robustness. The Fed estimates that trend growth could be reduced to 6.5% by 2030, a striking contrast to the nation's 10.0% annual growth over the past decade. Author Jane Haltmaier, a senior adviser in the Fed's Division of International Finance, said, “Most people would probably agree that the Chinese economy cannot maintain the extremely rapid growth rates it has seen over the past three decades indefinitely. The question is thus not whether the Chinese economy will slow (but) by when and by how much.”


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