The markets were spooked yesterday by the news that Spanish and Italian bond yields have risen for the first time since December 2011 above 6%. Billions were wiped off the value of companies listed on the major stock markets with all the main centres showing big losses. The Dow in New York had its single worst day of the year so far. Commodity markets followed suit as big price falls were registered against industrial metals on the fear of another world wide slowdown in demand.
The pound stands at a 4 month high against the euro as the poor results from the Spanish and Italian bond auctions took their toll.
In UK data, the British Retail Consortium (BRC) reported much better than expected results in March as the warm, sunny weather pushed sales values up 1.3% on a like-for-like basis compared to the year before. The figures follow last week’s data from the manufacturing, services and construction sectors which were better than expected. This has prompted analysts to predict the UK will avoid a so called ‘double dip’ recession in the first quarter of 2012.
The BRC were however quick to point out that the sales comparison was against the weakest month of 2011 and may have been largely caused by the movement of Easter in the calendar.
Stephen Robertson, Director General of BRC, said the unusually warm weather in March brought some welcome sunshine into the lives of retailers but warned the overall retail environment was still difficult.
“Discounting remains a key tactic for retailers trying to encourage consumers to spend, particularly on big indoor items,” he said.
“The warmth of March was a help but it will take more than a week of sunshine to transform retailers’ fortunes,” he added.
In the euro zone, Spain continues to suffer, not just from Spanish bond auction result weakness but its cause is not being helped by the strength of the bund which now has a yield of just 1.73%. In addition, the markets seem little impressed by the general 2012 budget announced by the Spanish government. The government has since announced further cuts to the Health and Education systems worth in excess of €10 billion. Data also showed Spanish home sales falling by a further 6.2% in February and were 22.7% lower than this time last year.
Meanwhile, Germany’s current account balance came in at a surplus of €11.1 billion and the trade balance showed a surplus of over €14.7 billion with exports rising 1.6% month-on-month while imports rose by 3.9% in the same period.
To add to the pressure on the euro, French industrial and manufacturing production fell in February. The latter fell by 1.2% during the month and by 3.7% on the year.
Overnight, China released data showing a trade surplus of $5.35 billion compared to an expected deficit of $3.15 billion and the previous month’s deficit of $31.48 billion with exports rising 8.9% year-on-year and imports rising 5.3% year-on-year (y/y).
Also, the Bank of Japan decided to keep its key interest rate unchanged at 0.1%, as the markets expected.