WEEKLY ECONOMIC COMMENTARY, 13 MAY 2012 (By DIFC)

Check out: http://www.difc.ae/difc-blogs/weekly-economic-commentary-may-13-2012

Election week created generalised turbulence in equity markets, with news on JP Morgan’s loss adding fuel to fire. Asian markets had their worst ever week since Nov last year. Regional markets mirrored activity in world markets, with all markets closing lower compared to the previous week, except for Egypt where Presidential elections are ongoing. The Greek uncertainty led to a three and a half month low in the euro alongside a rise in the pound as BoE decided to put QE on hold. Gold prices recorded the biggest weekly drop this year, losing its safe haven status while oil prices were down on slowing Chinese demand concerns.



Global Developments
Americas:

A rise in imports by 5.2% led to widening of the US trade deficit to USD 51.8bn in Mar (Feb: USD 45.42). The pickup in imports, the largest in almost a year, overshadowed the 2.9% gain in exports. Imports from China rose by 12%, widening the US-China trade gap to USD 31.5bn (USD 28.1bn).
US posted a budget surplus of USD 59.1bn in Apr, the first since Sep 2008, as tax revenues increased alongside a drop in expenditure. Compared to a year ago, receipts rose 10% to USD 318.8bn and spending was lower by 21%.
Initial jobless claims dropped by 1k to 367k in the week ended May 5, recording the lowest since end-March and the 4-week average touched 384k. Continuing claims, meanwhile, fell 61k to 3.2mn.
The Producers Price Index fell slightly by 0.2% mom in Apr (Mar: unchg) as energy prices dropped by 1.4% while the core PPI was up 0.2%.
U. of Michigan consumer sentiment picked up for the ninth straight month, rising to 77.8 in May (Apr: 76.4) - also the highest level since Jan 08.

Europe:

German factory orders grew by 2.2% mom in Mar (Feb: 0.6%), driven by overseas demand - domestic factory orders increased 1.3% while export orders climbed 3%, the latter driven by a 4.8% increase in sales outside the Eurozone.
Trade balance in Germany recorded a surplus of EUR 13.7bn (sa) in Mar, unchanged from Feb, after exports grew 0.9% mom (sa) alongside a 1.2% rise in imports.
Industrial production data for March was released in Germany, Italy, France and UK - with the first two recording unexpected rebounds of 2.8% mom (Feb: -0.3%) and 0.5% (-0.7%) respectively. In France, output slid by 0.9% mom (+0.3%) though manufacturing production climbed for the first time this year by 1.4%. In the UK, IP fell 0.3% largely due to a decline in oil and gas production while manufacturing output grew a higher-than-expected 0.9% (-1.1%).
April harmonised CPI was released in both Germany and Spain - at 2.1% and 2% respectively, both were higher than the ECB’s comfort zone of "close to but below two percent" level.

Asia and Pacific:

The PBoC on Saturday announced a cut in the reserve requirement for commercial lenders again by 50bps, effective May 18. This follows Apr data on new Yuan loans, which dipped to CNY 681.8bn - a drop of CNY 61.2bn and CNY 328.2bn compared to a year ago and a month ago respectively.
A host of Apr data was released in China last week: trade surplus widened to USD 18.4bn in Apr as exports increased by 4.9% to USD 163.3bn and imports rose 0.3% to USD 144.8bn; retail sales increased at a slower pace of 14.1% yoy (Mar: 15.2%), the lowest in almost 14 months, to CNY 1.56trillion; fixed asset investment grew 20.2% in Jan-Apr - this was the slowest since Dec 02; inflation moderated to 3.4% (Mar: 3.6%) as food prices rose by 7% compared to 7.5% in Mar.
Latest industrial production data released in both China and India recorded a decline. Chinese IP, at 9.3% yoy in Apr (Mar: 11.9%), was the lowest in three years while India’s IP fell by 3.5% in Mar (Feb: +4.1%), contracting for the first time since Oct last year.
Sluggish export growth dragged down Hong Kong’s Q1 GDP, which eased to 0.4% yoy compared to 3% in Q4. Indonesia, which also released Q1 GDP data, recorded a growth of 1.4% qoq and 6.3% yoy (Q4: -1.3% qoq, 6.5% yoy) on resilient private consumption as exports and total investments declined yoy.
Japan’s coincident index, an indicator of current economic activity, rose for the third consecutive month to 96.5 in Mar (Feb: 95.2). Mar current account surplus, at JPY 1.589 trillion, fell 8.6% yoy though exports gained by 7.3% - the first rise in six months.
Central banks of Malaysia, Indonesia and South Korea met last week and as expected, kept policy rates unchanged.
China, Japan and Korea have agreed to hold talks to create a Free Trade Area. They account for about 20% of global GDP and 19% of exports.

Bottom line: Sentiment has been largely overshadowed by elections and their outcomes: Sarkozy losing to Hollande in France and Greece failing to form a coalition government put a big question mark as to the fate of the Eurozone and the euro. China’s latest data has only added to the worries about a global slowdown.