WEEK IN REVIEW: Better-than-expected European data
Portugal’s debt auction this week was a landmark as the Goverment issued EUR 750mn worth of 10-year debt at a rate of 3.57%, the lowest rate in 8 years. This auction was non-syndicated, which means it did not benefit from the safety net of a syndicate of banks. The success of this operation raises expectations that Portugal will leave the current bailout programme without the support of a precautionary programme. Moreover, it may lead to a faster than expected upward revision of Portuguese debt ratings from the major ratings’ agencies. Portugal is currently benefiting from better-than-expected news on growth and public accounts as well as from rising interest from international investors that may have over-rated the country’s risk in the past. Budget execution in Q1 was better than projected in the bailout programme mostly thanks to rising revenues, on the back of rising personal income tax rates and measures to fight-off evasion in VAT. Spending remained broadly unchanged relative to Q1 2013 as lower spending on wages was offset by rising interest payments on debt.
In the euro area, the composite PMI, a survey of actual conditions, rose to 54 after 53.1, beating expectations and consistent with GDP growth close to 0.5%qoq. Germany led the pack, confirming its role as growth engine of the euro area. Meanwhile, Greece has confirmed that it hit a primary surplus for the first time since the crisis hit and GDP in Spain was up 0.4%qoq in Q1, which further supported sentiment towards Europe.
WEEK AHEAD: US economy in the spotlight
29 April: April EU Commission Confidence Indicators
- Federal reserve holds meeting: analysts expect asset purchases to decline further to USD45bn, US Q1 GDP will be released, it was up 2.6%qoq annualised in Q4.
- German Q1 GDP growth to be released: Expect a rise from 0.2%qoq in Q4
- Euro area April inflation: the decline to 0.5%yoy in March was probably due to the date of Easter. Analysts expect a rise to close to 1%, still below the ECB’s target
2 May: US Non-farm payrolls: employment due to rise by 200 thousand according to market expectations.