Global Investing

The Bundesbank is preparing to stomach higher German inflation than it likes, above the European Central Bank’s target level, because of the euro zone crisis, a source at the central bank said on Thursday.

Although the Bundesbank still wants stable prices across the euro zone, its latest comments show the bank recognises that upward pressure on German wage costs and property prices suggest its inflation is likely to rise above the bloc’s average.

As this chart shows, historically the Bundesbank was quick to react to any signs of inflation:

The Bank of England voted on Thursday not to give the struggling economy another injection of cash as concerns over stubbornly high inflation outweighed the risk of a prolonged recession.

The number of Americans submitting new applications for jobless benefits edged down last week, easing concerns the labor market was deteriorating after April’s weak employment growth.

It’s been a great year so far for South African bonds. But can it get better?

Ever since Citi announced on April 16 that South African government bonds would join its World Government Bond Index (WGBI),  almost 20 billion rand (over $2.5 billion ) in foreign cash has flooded to the local debt markets in Johannesburg, bringing year-to-date inflows to over 37 billion rand. Last year’s total was 48 billion. Michael Grobler, bond analyst at Johannesburg-based brokerage Afrifocus Securities predicts total 2012 inflows at over 60 billion rand, surpassing the previous 56 billion rand record set in 2o1o:

The assumption..is based on the fact that South Africa will have a much larger and diversified investor base following inclusion in the WGBI expanding beyond the EM debt asset class

Is the National Bank of Poland (NBP) the last inflation-targeting central bank still standing?

The bank shocked many today with a quarter point rate rise, naming stubbornly high inflation as the reason, and signalling that more tightening is on its way. The NBP has sounded hawkish in recent weeks but few had actually expected it to carry through its threat to raise rates. Economic indicators of late have been far from cheerful – just hours after the rate rise, data showed Polish car production slumped 30 percent in April from year-ago levels. PMI numbers last week pointed to further deterioration ahead for manufacturing. And sitting as it does on the euro zone’s doorstep, Poland will be far more vulnerable than Brazil or Russia to any new setback in Greece. Its action therefore deserves praise, says Benoit Anne, head of emerging markets strategy at Societe Generale.

(Poland’s central bank) is one of the last orthodox inflation-targeting central banks in the global emerging market central bank universe. They are taking action because they are seeing inflation creeping up and have decided to be proactive.

The European Central Bank kept interest rates on hold on Thursday.  President Mario Draghi urged euro zone governments to agree a growth strategy to go hand in hand with fiscal discipline, but as thousands of Spaniards protested in the streets he gave no sign the bank would do more to address people’s fears about the economy

The divergence between Euro zone countries is starting to impact analyst estimates for earnings. As this chart shows earnings forecasts for Spain and Portugal are seeing more downgrades than Germany or France.

The inflation rate in Turkey rose to 11.1% in April, putting pressure on the central bank to raise interest rates:

U.S. consumer confidence came in slightly weaker than expected but the ‘jobs-hard-to-get’ index – historically a good lead indicator of the unemployment rate - fell to 37.5 in April.

Spanish equities in price terms are near their 2009 lows but valuations are still some way above:

Australian consumer prices rose by less than expected last quarter while key measures of underlying inflation showed the smallest rise in more than a decade, paving the way for a cut next week and suggesting further cuts were possible.

Spanish house prices fell 7.2 percent in the first quarter from a year earlier while Spanish banks’ bad loans rose to their highest level since October 1994 (see chart).

The Bank of England is poised to turn off its money-printing press next month. Minutes of the Bank’s April meeting, combined with a stark warning on inflation from deputy governor Paul Tucker on the same day, signalled a sharp change in tone that could bring forward expectations for interest rate rises.

Does the E in PE need a reality check too?

Argentina’s debt insurance costs rose after the country moved to seize control of leading energy company YPF on Monday,  Madrid called the move on YPF, controlled by Spanish company Repsol, a hostile decision and vowed “clear and strong” measures, while the EU’s executive European Commission warned that an expropriation would send a very negative signal to investors. Of the countries in the MSCI Frontier equities universe Argentinian equities are the worst performer this year.

German analyst and investor sentiment rose unexpectedly in April. The Mannheim-based ZEW economic think tank’s monthly poll of economic sentiment rose to 23.4 from 22.3 in March, beating a consensus forecast in a Reuters poll of analysts for a fall to 20.0.

India’s first interest rate cut in three years may be its last for a while. The central bank cut rates on Tuesday by an unexpectedly sharp 50 basis points to boost the sagging economy, but warned there was limited scope for more cuts, with inflation likely to remain elevated and growth on track to pick up, albeit modestly.

The euro zone’s economy took an unexpected turn for the worse in March, hit by a sharp fall in French and German factory activity. The manufacturing purchasing managers indexes for France and Germany were both worse than even the most pessimistic expectations from economists polled by Reuters.

China’s HSBC manufacturing PMI also fell to 48.1, below 50 for a fifth straight month.

“Reflation trade”? Equities have been tracking the 5yr breakeven inflation rate derived from inflation-protected bonds.

U.S. February housing starts fall slightly to a 698,000 annual rate:

UK inflation edged down to 3.4% in February:

Spanish banks’ bad loans highest since August 1994

One Apple chart that has been going down for 10 years is its forward P/E ratio:

Rising gasoline prices push up American’s inflation expectations for the next year:

Currency moves this year: