20100520 1107 Global Economic News.

U.S. consumer prices unexpectedly dropped 0.1% mom in April (0.1% in Mar) for the first time in more than a year, signaling the economy is recovering without causing prices to flare. The decline was largely due to a 1.4% drop in the energy index while food prices rose 0.2%.

• Excluding food and fuel, the so-called core rate was unchanged, capping the smallest 12-month gain in four decades. Economists had expected consumer prices and core inflation to rise 0.1% each. On an annual basis, CPI up 2.2% in April (2.4% in Mar). (Bloomberg)

The Mortgage Bankers Association's purchase index plunged 27.1% in the 14 May week on top of the 9.5% plunge in the 7 May week to pull the index to its lowest level since 1997 following the expiration of second-round housing stimulus. These results point to very weak home sales for this month and a new weight on home prices. Falling mortgage rates failed to limit the fall in purchase applications, but they did give a big boost to refinance applications which jumped 14.5%. Mortgage rates for 30-year loans down 13bp in the week to an average 4.83%. (Bloomberg)

Wall Street is poised to score a victory in its efforts to beat back a crackdown on banks that trade the complex financial products known as derivatives. On Tuesday, Senate Banking Committee Chairman Christopher Dodd, D-Conn., proposed a compromise change to the Wall Street reform bill that would water down a proposed ban on derivatives trading by many financial firms. (CNN Money)

US competitiveness fell for first time in 16 years. The US, number 1 since 1994, has been topped by Singapore and Hong Kong in the IMD World Competitiveness Yearbook 2010. (Bloomberg)

Federal Reserve officials raised their growth estimates for 2010 and lowered forecasts for unemployment and inflation, according to minutes of the Federal Open Market Committee meeting on 27-28 Apr. Central bankers said the economy will expand in a range of 3.2-3.7% this year, leaving their 2011 forecast unchanged at 3.4-4.5%. In January, central bankers forecast 2010 growth of 2.8-3.5%.

• Fed officials’ central tendency forecast for the average unemployment rate in the final three months fell to 9.1-9.5% vs. 9.5-9.7% in January. Their estimate for 2011 unemployment was in a range of 8.1-8.5% vs. 8.2-8.5% in January. 
• The personal consumption expenditures price index minus food and energy will rise 0.9- 1.2% this year, down from January’s estimates of 1.1-1.7%. Estimates for 2011 core inflation were also lowered to 1.0-1.5% vs. the January forecast of 1.0-1.9%. (Bloomberg)

Federal Reserve policy makers last month said they were in no rush to sell US$1.1tr of mortgage-backed securities, with a majority preferring to wait until after the central bank starts raising interest rates, the Fed said in minutes of its 27-28 Apr meeting. Chairman Ben S. Bernanke and his colleagues are still trying to reach a consensus over when and how fast to reduce the Fed’s balance sheet as the economy recovers. The Fed aimed to lower home-loan costs and boost growth by buying mortgage securities through last March after cutting the benchmark interest rate almost to zero in Dec 08. (Bloomberg)

Rioting erupted across Bangkok after Thai security forces backed by armored vehicles cleared an anti- government protest camp and forced its leaders to surrender. In a televised broadcast, army spokesman San sern Kaewkamnerd earlier said troops “completely control” the protest camp, announcing an end to a six-week standoff that roiled the country and killed more than 60 civilians and soldiers.

• The government announced a curfew in the city from 8 p.m. until 6 a.m. today, and extended it to two northeastern provinces. All financial institutions will be closed for the rest of the week. (Bloomberg)

Credit-default swaps soared as German Chancellor Angela Merkel’s curb on using the contracts to speculate on European sovereign debt sparked concern among investors about increasing government regulation. The Markit iTraxx Crossover index of swaps on 50 European companies surged 50bp to 582, according to Markit Group Ltd.

• The Markit iTraxx Asia index on investment- grade borrowers outside Japan climbed 10bp to 131.5, Royal Bank of Scotland Group Plc prices show. The jump in the indexes signals deterioration in investor perceptions of credit quality. (Bloomberg)

China is unlikely to undertake a “large” one-time appreciation of the renminbi when it lets the currency move against the dollar, former Hong Kong Monetary Authority head Joseph Yam said. Policy makers will allow flexibility “sooner or later,” with the timing dictated by economic and financial conditions rather than political events, Yam said in a speech in Singapore yesterday. (Bloomberg)

China’s central banks limited orders for a three-year bill sale to ensure that a surge in demand for the securities won’t disrupt the market, according to three traders at primary dealers. The monetary authority today told banks not to add to the amounts or change yields of their bids indicated on Monday, said the people, who work at finance companies obliged to support demand during auctions. Primary dealers are normally allowed to add to their orders on Wednesday for the three-year bill auction. (Bloomberg)

Oil prices continued to fall, hitting a 7-month low Wednesday, as investors were unnerved by reports that Germany will ban some types of short-selling. Crude for June delivery fell by as much as US$1.51, or about 2%, to US$67.90 a barrel in intra-day trade Thursday morning. That's its lowest level since 30 Sep 09 when oil slumped to US$66.33 a barrel in intra-day trade. (CNNMoney)

Japan’s industrial production rose 1. 2% mom in March. It rose sharply from a preliminary reading of 0.3% for the month has been attributed to increased demand for Japanese passenger cars and electrical machinery and marks the first month- on-month increase in two months. The capacity utilization index was up 0.6% mom in March to a seasonally adjusted 90.6 (vs. preliminary reading of 0%). (Bloomberg)

Moody’s Investors Service says it will maintain its stable outlook on Thailand’s banking system despite the violent conflict between protestors and security forces in the country. Moody’s, which changed the credit outlook to stable from negative in January for the banking system, said the sector’s asset quality and earnings have shown “considerable resilience” to political turbulence in recent years. (Bloomberg)

Indonesian President Susilo Bambang Yudhoyono named career banker Agus Martowardojo as finance minister to replace outgoing Sri Mulyani Indrawati, who joins the World Bank as one of three managing directors next month. Yudhoyono also named Anny Ratnawati, director general of budget affairs at the Finance Ministry, as vice finance minister. (Bloomberg)

The euro’s current level is close to an “equilibrium” value and its decline to the weakest in four years against the dollar may help Europe’s exports, the International Monetary Fund’s First Deputy Director John Lipsky said. “The current level of the euro does not appear to pose problems. The euro is rather close to what we would consider equilibrium value (debuted at a value of US$1.17) after an extended period at which it traded above that value,” he said. (Bloomberg)