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World Bank cut its economic growth forecasts for East Asia...

Monday, October 8, 2012 3:43 AM GMT

Good Morning ,

 

-   On Friday, trading was, as expected, dominated by the US payrolls report . The outcome of the headline payrolls figure was near expectations, but markets looked at it through rosy glasses and saw encouraging signals in the details, like the drop in the unemployment rate, the longer workweek and the stronger earnings. So, equities and the euro moved higher and core bonds dropped lower.

 

-   Shanghai Composite fell -0.59%, Hong Kong's Hang Seng dropped -0.56% and South Korea's Kospi shed -0.67%. 
The HSBC China Services PMI improved from 52.0 to 54.3 in September, but sentiment lowered as the World Bank revised down the GDP forecasts to 7.7% in 2012 (from 8.2%) and to 8.1% in 2013 (from 8.6%), getting in line with most private predictions.

 

-  On intra-EMU bond markets, yield spreads vis-à-vis Germany narrowed. Portuguese bonds kept outperforming following last week’s successful return to the bond market via a bond swap. Spreads declined by 50 to 70 bps, the belly outperforming. The Spanish 10-yr spread dropped 29 bps.

 

-   German Chancellor Merkel announced a visit to Greece this

week. It’s the first visit since the crisis erupted and is seen as a sign that Greece’s

future lays within the EMU. We note that IFO president Sinn over the weekend

said that a temporary Greek exit would be “better for the Greeks and better for

us”.

 

 Bundesbank said it would engage in bond buying, despite the opposition against the OMT-programme. 
There were also more 
rumours (El Pais) about the functionalities of OMTs. For those countries that ask a bailout package, the ECB would buy bonds on secondary markets for eight weeks and then purchases will stop for four weeks.

 

-   Today, the eco calendar is very thin with only the German industrial production data. Euro area Finance Ministers meet in Luxembourg, while in the US the Columbus Day Holiday will limit market activity. Norway (Bonds, May 2015) and Germany (Bubills, Apr 2013) will tap the market.

 

-   The euro group meeting of the Finance Ministers today and the Ecofin meeting tomorrow will get plenty of attention. The agenda contain 12 subjects, most of which are devoted to discussion, without an immediate decision. However, the way the discussions evolve might be important for markets. Of course, it will be comments afterwards from participants that will inform markets together with the press conference of the chairman, Mr. Juncker. The first 4 agenda points consist of a discussion on the situation in Spain, Greece, Cyprus and Portugal. 

 

-   On Greece, we don’t expect much progress as the final Troika report is not on the table. Neither has the Troika finished his preparatory work on the Cyprus request for a bail-out. 

 

-   IMF Managing Director Christine Lagarde said during the weekend that IMF

talks with Greece on the debt crisis had been positive and the discussion of the

fiscal chapter of Greece’s programme had been very good and very productive.

Talks between the Troika and Greece will continue after the Eurogroup meeting

 

-   The World Bank cut its economic growth forecasts for East Asia and the Pacific

region this morning and said there was a risk the slowdown in China could

worsen and last longer than many analysts have forecast as the growth

slowdown is driven by both weaker exports as well as domestic demand.

 

Have a nice day !

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