PMI index for manufacturing areas of Britain exceeded forecasts for March

Index PMI, reflects the dynamics of business activity, economic conditions and prospects of the UK manufacturing sector amounted to 57.2 points in March against 56.5 points in February. The value index has surpassed expectations of analysts had forecast a slight increase to 56.8 points.

Recall that the indicator value above 50 points indicates growth of business activity in the industrial sphere, below the 50 - to slow down.

Also note that the PMI index takes into account the market, since it simultaneously reflects several aspects of economic development, including employment, prices and economic expectations. Positive data could help to strengthen the pound against other currencies.

PMI index for the industrial sphere eurozone rose for March, more than expected

Business activity in the euro zone manufacturing sector has improved significantly in March compared with the previous month. In the final data, PMI in the manufacturing sector (PMI manufacturing) for the reporting month was 56.6 points compared with the preliminary estimate of 56.3 points. Recall that in February index was at 54.2 points.

It is worth noting that the PMI index accurately reflects the economic conditions in the manufacturing sector, the overall economic situation and development prospects. The index shows steady growth since March 2009. The index value above 50 points indicates growth of business activity, below - to slow down.

Number of applications for unemployment benefits in the U.S. fell to 439 thousand

The number of primary applications for unemployment benefits in the U.S. declined for the week to March 27 at 6 thousand to 439 thousand

The average figure for the period in the past four weeks fell by 6.75 to 447.25 thousand thousand

The number of Americans continuing to receive unemployment benefits dropped for the week to March 20 at 6 thousand to 4.66 million.

Euro / Franc bravely stood up to historic lows

 The euro / franc to a fresh historic lows near Shf1.4140 made SNB, which has long remained on the sidelines, to enter the market to curb the increasingly growing domestic currency. Dealers noted that the message that the central bank to intervene provoked panic liquidation of open short positions earlier, resulting in the euro / franc soared to Chf1.4409. To date, the couple has adjusted sharply lower and holding near Chf1.4320, but dealers note that while the above Chf1.44 were marked selling by some big names, they were not too large, and the current aggressive movement of the euro due to a significant reduced liquidity in the market.

Termination of the Fed buying MBS, along with increasing self-confidence

By the end of the program of the U.S. Federal Reserve worth 1.25 trillion dollars to buy mortgage securities guaranteed by Fannie Mae and Freddie Mac, investors behave with surprising calm.

And just a few months earlier, many worried that without the continued intervention of the central bank, mortgage loans can be quite expensive and discourage potential buyers, driving the market for a new recession. Now, exit the Fed is seen no more than a minor episode. Such events may be a sign that the financial system again seeping confidence.

Of course, there are reasons for an optimistic point of view of investors, and the timing was just as much. First, many traditional buyers of these mortgage-backed bonds or left out of the game, or buy fewer bonds than allow their portfolio. According to Credit Suisse, they, along with index funds, now account for 18% of the market, down from 25% before the Fed came into the game.

However, most are not now a huge selection of alternatives for investments that would meet their strict criteria, which means it can fill the empty space left by the Fed. Banks with cash reserves after raising their level of capital is also attractive to potential buyers, said that the owner of JPMorgan, Jamie Dimon (Jamie Dimon) at a conference last month.

Bondholders are also hoping to catch the wind. According to Credit Suisse, Fannie and Freddie back in the hands of mortgage investors, 136 billion dollars between April and June, because the moment they purchase bad loans from mortgage pools underlying the existing bonds. This should ease the way the Fed. If we assume that investors get paid back in the market, those dollars would be enough to replace the central bank's recent purchase of three to four months.

Still, market observers are likely to think that the end of the program of the Federal Reserve will have some impact. Many expect the spreads of mortgage securities, or the risk premium increased only from 0.15 to 0.2 percentage points, which would be a slight deviation from about 1.5 percentage point narrowing of spreads since the peak of panic in November 2008. There is too much money waiting for the weakness of the market and that his attack when spreads rise more than stated.

This may be true. But here's the question: Should investors were so keen to mortgage securities, are precisely will not get them at a low price, even if prices fall below the expected level? Over the past 15 years, mortgage spreads, combined with the Treasury maturities, reached an average of 1.45 percentage points from the expected value without the help of the Fed. It is hardly in such a situation, the transaction will be possible.

Moreover, the Fed seems to be slowly changing its attitude to the conservation of purchased mortgage-backed securities. In public statements last week, Fed Chairman Ben Bernarke and several colleagues, seemed to pay more than expected, attention to asset sales, as the method of the Central Bank to exit from the extraordinarily soft policy.

Nobody expects the Fed's emergency sale of its securities, it would be foolhardy, given the fragility of the housing market and a consistently high level of unemployment. However, since the Fed now owns about 25% of outstanding mortgage bonds, any talk about the actual sales have far greater concern than if the Fed simply stopped buying.

The risk of interest rates also looms large. As the economy grows, interest rates should also rise. This means that a smaller number of U.S. borrowers will repay their loans early and investors will keep bonds longer than expected, which will be a potential cause of discrepancy between the financing and timing of assets. Moreover, it can lead to a drop in bond prices, creating losses, at least on paper. Of course, investors can hedge the risks on interest rates, but it has never been an ideal insurance for mortgage securities.

And finally, frightened by the behavior of financial markets should give investors pause. Not only because of what happened with the yield on the last week, but also because of the ratio of interest rate swaps, the main instrument of the mortgage market to hedge against interest rates falling below the yield of Treasury securities, this accident could make the hedge less effective. Alarm calls are not yet apparent, but this is a timely reminder to investors that are relaxed due to the fact that the Fed comes out with the mortgage market that the more traditional risks are still not gone away. 

 

 

Reuters, Mar 30

Sharp statements regarding China ignore the economic realities

Last week, Washington was again to discuss their concerns about China and its currency. At a time when there are many other important issues facing the US-China relations, many of us do not understand why the problem of currency worries Congress the most. Once every six months, this time on April 15 U.S. Treasury checks, whether China currency manipulator ", and it is not clear whether such a fuss even help someone else.

Indeed, from a macroeconomic point of view, the timing of this could not be more inappropriate. About four weeks ago, Obama introduced a plan to double exports over the next five years. Very ambitious, given the past weak dollar and rising domestic demand in many developing countries, including China, but the U.S. has a chance to achieve this goal. So why follow the path of retribution "eye for an eye" if the course of events and so can turn in the opposite direction?

There are three main problems which need to focus American policy: domestic demand in China, its trade relations with other countries, and exchange rates.

With all due respect to domestic demand in China, it is clear that he is now far too strong, and certainly not at that level, so that you can blame China that its influence on the world economy "is not great." Approximately thirteen years we have used our own GDP for China, the so-called index of Chinese activity Goldman Sachs. Currently, he is growing annually by 14 percent or more. In fact, and this is the trick, if Washington and the other would maintain silence, China's policy would become even more vigorously to contain inflationary pressures by, inter alia, the introduction of more flexible exchange rate.

Take a look at several indicators of data to local or global companies that do business in China, published data on consumption and investment, or, more importantly, the trade data, true. Talk to someone who is involved in any level of consumer business, whether it be Tesco, Walmart, or Louis Vuitton, as well as look at their records. Chinese consumption is probably true is growing by about 15%, which compares with 2-3% growth for the American consumer.

While the involvement of China in the rest of the world is saved, the worst in the current crisis is not a strong Chinese exports, but the strong imports. The forthcoming publication of reports on trade in just a few days before the report of the Treasury is likely to show a huge increase in imports, in absolute terms and relative to exports. A similar situation is observed not only in China but also in many other important countries with high levels of foreign trade. Indeed, quite surprisingly, that the trade turnover between Germany and China shows strong growth so that if the trend until the next spring, they will exceed the growth of trade with France. Last year, China announced that its balance of payments surplus amounted to 5.8% of GDP, significantly below the levels predicted by many people in Washington. In 2010, the surplus could be closer to 3% (by the way, the level below 4% is considered a "balance" in the Peterson Institute for International Economics).

Which brings me to exchange rates. I spent much of his career, working on models of exchange rates, and familiar with all the difficulties. We develop our own model for many years at Goldman Sachs, including the yuan. At the moment, and this is very strange, our model shows that the yuan is very close to its fair value. Model usually shows that the currency is undervalued by 20%, but in past five years the situation has changed. Of course, we are less confident in the accuracy of the model than the conventional monetary model, given the huge changes in the growth dynamics of the Chinese and the world at large.

This brings us to the irony of the question. Why American politicians have to click on the buttons of protectionism at the very moment when there is clear evidence that the opposite outcome of events will only benefit? In addition, all should be clear that linking the yuan to the dollar lost its meaning, which, incidentally, recently the president of the People's Bank of China.

 

 

By Jim Neal - Chief Economist, Goldman Sachs

RBC Capital Markets appreciated the prospects of Canadian currency

As noted by foreign exchange analyst RBC Capital Markets, by the beginning of the second quarter of the Canadian dollar has a leading position among the ten major currencies to rise by 3.7% against the U.S. dollar and almost 10% against the euro and British pound. Moreover, the Canadian dollar will likely still retain primacy view of the approaching date will the first interest rate increase by the Bank of Canada. Later this year, as growth expectations of the Fed raising interest rates and a corresponding strengthening of the U.S. dollar, the currency of Canada will lose its leadership position. However, the privileged position the Canadian dollar against the euro and the pound will continue.