=================> Developed Markets <===============
Payroll data and jobless claims suggest a weakening U.S. recovery
WASHINGTON - U.S. job growth braked sharply for a third straight month in May and the unemployment rate rose for the first time in nearly a year, raising chances of further monetary stimulus from the Federal Reserve to support the sputtering recovery.
Labor-market data indicate that the U.S. recovery might be losing momentum. Private employers hired 133,000 workers in May, a slight improvement over April's 113,000, payroll processor ADP said. Initial claims for unemployment benefits increased 10,000 last week, the Labor Department said.
Strong U.S. car sales start to show signs of weakening
Rising auto sales have been a powerful force driving the recovery of the U.S. economy this year but new data suggests that trend may be running out of steam. Based on data through the middle of this month, new car sales are expected to be up 6% in May, compared with a year earlier. The forecast is well below the double-digit growth the industry saw most of this year.
Drop in pending home sales in U.S. catches economists by surprise
Pending sales of previously owned homes in the U.S. dropped to a four-month low in April, falling 5.5%, the National Association of Realtors said. Economists polled by Reuters expected the trade group's Pending Home Sales Index to rise 0.1%.
Demand for 10-year U.S. Treasurys still outstrips supply
After four years of $1 trillion budget deficits, investors' demand for 10-year U.S. Treasury securities still far exceeds the amount the government is ready to sell. Such debt yields 24 basis points more than the average for debt issued by AAA-rated nations, including Germany and Australia.
Data shows Britain's recession is deeper than first estimated
The latest economic data shows that the U.K. recession is more severe than the initial estimate suggested. The Office for National Statistics said the economy contracted 0.3% in the first three months of 2012, rather than 0.2% decline it estimated in April.
The Economist Analysis: Limited federalism offers best future for EU
The euro is worth saving and the best way to accomplish that goal is for the EU to embrace a limited form of federalism with centralized bank supervision and mutualization of some, not all, of the region's debt, according to the Economist. "The euro zone's problem is not the debt's size, but its fragmented structure," the magazine notes. "Taken as a whole, the stock of euro-zone public debt is 87% of GDP, compared with over 100% in America."
Europe's leveraged-loan defaults could hit 25%, Moody's warns
As Europe's economy continues to go downhill, 25% of leveraged-buyout firms with debt maturing by the end of 2015 might default on their obligations, Moody's Investors Service said in a report. "The 2014-2015 refinancing risk remains large and worrisome given our expectations of protracted macroeconomic weakness, combined with the weak average credit quality of this universe," according to the report.
Spain's cost of borrowing reaches record high
The risk premium demanded by investors to hold Spanish debt climbed to a record high after Bankia said it needs a capital infusion from the government. The spread above Germany's 10-year debt for Spain's comparable bond reached 5.1 percentage points, the highest since the euro was launched.
Analysis: Save Spain's banks now, and reduce its deficit later
The Spanish government and European leaders must temporarily set aside the challenge of reducing the nation's budget deficit and direct all effort toward preventing a collapse of Spain's financial system, according to The Economist. "Time to solve Spain's debt crisis is running out," the magazine notes. "Doing so requires a radical rethink in Madrid, but above all in Brussels and Berlin." The Economist
Germans ease austerity pace for Spain, markets in turmoil
BERLIN/DUBLIN - EU paymaster Germany softened its drive for austerity across the euro zone on Friday, agreeing to allow Spain more time to cut its deficit while its battles a deepening bank crisis, capital flight and recession.
Euro zone unemployment hits record high, seen rising
BRUSSELS - Euro zone unemployment has hit a record high, and job losses are likely to keep climbing as the bloc's devastating debt crisis eats away at businesses' ability to hire workers while indebted governments continue to cut staff.
(Reuters) - Moody's cuts Greek domestic rating ceiling on euro exit risk
NEW YORK - Rating agency Moody's Investors Service said it had lowered its ratings ceiling on Greek domestic debt issuers due to the rising risk of the country exiting the euro zone, but added it did not consider that the most likely scenario for the country.
Switzerland may impose capital controls if nations leave eurozone
Swiss National Bank President Thomas Jordan said Switzerland is reviewing the possibility of adopting currency controls to limit capital inflows, in the event that countries start pulling out of the eurozone. Jordan said he doesn't believe the eurozone will be torn apart by the current debt crisis.
U.S. has limited exposure to downturn in Europe and China
Economic problems in Europe and China are likely to harm those regions more than the U.S. China, which is seeing slowing economic growth, has been a major buyer of European exports but plays a smaller part in the U.S. economy. China bought $178 billion worth of products from Europe last year, according to Comtrade, compared with $123 billion from the U.S.
Germany sells $5.8B worth of its first zero-percent bond
Confirming its safe-haven status, Germany sold its first bond that provides no regular return. The government sold $5.8 billion worth with a zero-percent coupon. The debt priced at a small discount to face value, giving investors an average yield of 0.07%.
Fitch lowers Japanese credit rating
Fitch Ratings downgraded Japan's sovereign credit rating for the first time since 2001. The result, A+, is still investment grade and slightly higher than ratings for troubled Spain and Italy. Fitch rebuked Tokyo for not doing enough to reduce debt. Public debt will approach 240% of gross domestic product by year-end.
Japan - 1Q/2012 GDP 1st preliminary result
First preliminary GDP estimates for 1Q 2012 show real growth of +4.1% (qoq, annualized). This came in above prior expectations (Bloomberg consensus: +3.5), supported by resilient consumption and rebuilding investment in the earthquake devastated area, but it also includes a temporary rebound from the widespread flooding in Thailand around the end of last year. This suggests the growth rate in Q2 will normalize to a slower pace. By component, private consumption pushed up headline growth by +2.6pp and private inventory a further +1.7pp. Also, public investment surged as expected, contributing +1.0pp to GDP growth. On the other hand, capex dropped significantly with a pullback from the spurt in 4Q/2011 (-14.8% after +22.3%), confirming the pace of recovery in capex is quite slow on average.
Japan posts wider-than-expected trade deficit for April
Japan's trade deficit last month was larger than expected, as rising energy costs drove up the value of imports, while sales to China, Japan's biggest customer, declined. The deficit reached $6.5 billion, compared with $6 billion in April 2011.
================> Emerging Markets <=================
Southeast Asia's solid economic growth rides over global woes
(Reuters) - Southeast Asia is showing stronger signs of resilience to global turbulence than the rest of Asia as buoyant domestic spending offsets struggling exports, while low debt levels give governments more room than their cash-strapped counterparts in the West to deliver stimulus.
"Countries like Indonesia, the Philippines, Thailand, Malaysia, they continue to invest heavily in infrastructure to meet demands of people and investors, so we're growing at double-digit rates there," said Stuart Dean, chief executive of GE operations in the Association of South East Asian Nations.
(Credit Suisse) - China: May headline PMI
The headline PMI for May fell 2.9 pp to 50.4, against the consensus of 52. This set of data is very weak, much worse than much worse than our expectation and possibly also the government's expectation. The new orders index dropped sharply by 4.7 pp to 49.8, indicating that the manufacturing sector faces a recessionary threat
The PMI input prices index collapsed, down 10 pp to 44.8. This suggests that the margins of the upstream industries have eroded quickly, and that a deflationary threat may be emerging.
We are worried about deflation and upstream industries' cash flow. Growth should be around 7% now, but a hard landing is not our central case, due to stimuli and consumption.
We expect more pro-growth policies to be launched. We expect a cut in the lending rate by 25 bps (without lowering deposit rates) within the next month or so, along with a 50 bps cut in the RRR (on top of our call for another two cuts). We expect a fast track approach in approving local investment projects. Beijing may deliver the funding from the central government quickly.
India: Jan-March 2012 Real GDP (4Q FY12)
India's quarterly growth of 5.3 was well below the market consensus of 6.1% and softer than anything seen during the global financial crisis when GDP growth bottomed at 5.8%. It will probably send shivers down the spines of senior coalition politicians, who will no doubt be putting pressure on the Reserve Bank to react and react aggressively.
Output breakdown: The output breakdown of GDP showed widespread weakness with agricultural growth slowing to just 1.7% (from 2.7%), industrial growth down to 2.2% (from 2.6%) and services at 7.9% (from 8.9%). The last of these represents the biggest difference with the global financial crisis period when services growth remained above 9%. This in turn signals the more domestic nature of the current downturn.
India - Govt allows foreign individuals to buy debt
NEW DELHI/MUMBAI - India will allow foreign retail investors to buy local corporate bonds for the first time in its latest move to bolster capital inflows and support the shaky rupee, though the action was seen as too limited to boost the local currency.
Korea: April Industrial Production and May CPI
Industrial production was flat from a year ago in April, but rose 0.9% MoM. Although the mild sequential production gain was a positive surprise, the chance of seeing production activity improving visibly in 2Q12 is still small. The producer shipment index fell 1.1% YoY in April. On domestic demand, consumer sales growth remained slow at 0.4% YoY. Investment conditions saw some moderate improvement, but construction activity remained weak. Headline CPI Inflation stayed moderate at 2.5% YoY in May (the same as in April), in line with the consensus expectation. Inflation is a lesser threat to the Korean economy at this juncture.
As the external economy remains weak and Korea's domestic demand conditions seem to have faltered lately, the downside risk to Korea's growth has increased. It's expected that the BoK will keep the policy base rate unchanged at 3.25% at its 8 June meeting.
Philippines: 1Q 2012 GDP
Real GDP growth for 1Q 2012 was 6.4% yoy - significantly above the market estimate of 4.3%. The official seasonally adjusted GDP estimate showed a 2.5% non-annualized quarter on quarter expansion. 4Q 2011 GDP growth was also revised up to 4% from 3.7% yoy earlier.
Domestic demand was strong, thanks to government spending. Apart from exports, government spending growth was another important contributor to GDP growth, recording a 24% yoy gain in 1Q 2012 after a 7.6% yoy rise in 4Q 2011. Private consumption growth continued to be robust at 6.6% yoy, compared with 6.4% in 4Q 2011. While public construction rose 62% yoy, a slowdown in private construction dampened the gain in fixed asset investment, which grew 3.3% yoy (from a 2.4% contraction in 4Q 2011).
Thailand: April Industrial Production
Industrial production rose 0.5% yoy in April, significantly below the market's expectation. The March figure was revised up marginally to -2.7% yoy from -3.2%. The weakness in industrial production is not Thai specific. We also saw industrial production for April coming in below market estimates in Singapore and Taiwan last week. This suggests that the key drag on production is likely to be weak global trade demand and potential inventory corrections.
Brazil brings key interest rate to record-low 8.5%
Brazil's central bank cut the benchmark Selic interest rate to a record-low 8.5% and said it is prepared for further reduction. Struggling to restart economic growth, Brazil has lowered interest rates 4 percentage points since August, more than any other Group of 20 economy.
Rupee fall won't hurt India's ratings: Moody's
Reuters Market Eye - Moody's Investors Service says the depreciating rupee will only have a "limited" impact on India's sovereign ratings, as only 7 percent of total government debt is placed overseas, comprising 5 pct of gross domestic product.
South Africa: Low savings and high dependence on European capital
South Africa's savings rate remains low at 16% of GDP, half the emerging market average. The country's savings rate also remains well below its investment rate, keeping it dependent on foreign capital inflows. There are a number of European-specific risks inherent in South Africa's external funding needs and sources of funding.
First, Europe remains the second most important regional destination for South Africa's exports, including manufactured goods. Second, Europe remains South Africa's largest source of foreign capital, 34% of which are volatile portfolio investments. Third, Europe remains the largest destination for South African foreign investment, 53% of which is in portfolio non-banking equity securities.
These three relationships pose risks for South Africa's current account, capital flows and the rand. According to our estimates, the rand's real effective exchange rate (REER) is now 10% weak relative to its fair value. The rand looks likely to remain undervalued for the rest of the year, in our view, as 'safe-haven' flows into US dollar assets continue.
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