Key Themes And Views

CENTRAL BANKS ON WATCH, SOME ON THE WARPATH. China’s central bank governor Zhou Xiaochuan on Saturday warned that China will continue tightening monetary policy for “some time,” and on Sunday raised reserve requirements 50bp for all depository financial institutions. This was expected, and is the fourth rise this year, to record levels. Monetary policy tightening in China entails not only raising interest rates but also raising reserve requirements, curbing lending targets, regulating retail prices, and indeed trying just about anything as long as it doesn’t involve yuan appreciation, though one wonders how long that cow can remain sacred. The weekend’s move is well justified, with Friday’s data showing consumer prices rising at 5.4 percent, the fastest rate since 2008, and exceeding the government’s 2011 target for a third month. In other countries, Euro inflation was also up in March, prompting Bundesbank President Axel Weber to warn “we see a significant increase in inflationary pressure”. US wholesale costs rose a hefty 5.8 percent versus a year ago, and Bank of England policymaker Andrew Sentence said weakness in the GBP threatened to push UK CPI above 5 percent. NZ CPI is headed the same way, albeit without a weak currency – March quarter data is out today.
GREECE ON A SLIPPERY SLOPE? German taxpayers are crying “enough bailouts” at the ballot box, prompting German Deputy Foreign Minister Werner Hoyer to say a Greek sovereign debt restructuring “would not be a disaster.” The strong message from the Eurozone’s main bankroller that receiving a bail-out is not equivalent to a lifelong guarantee of a nation’s sovereign debt should not really have been news to many, but nonetheless saw yields on ten-year Greek debt rise 55bps to an eye-watering 13.83 percent. (A Moody’s double credit downgrade to Ireland didn’t help sentiment). Meanwhile the Greek Government is frantically selling 35 billion euros worth of the family silver and making further budget cuts. All up it’s no surprise, perhaps, that Anti-Euro parties are starting to win record support in Euro-area polls.