The week's top news in world financial markets from Maximus Capital

USA

Service industries expanded in March at the fastest pace since May 2006, indicating the U.S. recovery is spreading beyond manufacturing and starting to create jobs. The Institute for Supply Management’s index of non- manufacturing businesses that make up almost 90 percent of the economy rose to 55.4, higher than anticipated, from 53 in the prior month. Readings above 50 signal expansion. Pending home sales in February jumped by the most since 2001, another report showed today. A pickup in consumer purchases is benefiting companies such as Carnival Corp. and Best Buy Inc. and points to a broad-based expansion that may stimulate hiring. Sustained job gains on the heels of the biggest payroll increase in three years would lift incomes, giving households the wherewithal to keep spending, which accounts for about 70 percent of the economy.

Euro zone

Europe’s manufacturing industry expanded at a faster pace than initially estimated in March as reviving global demand prompted companies to step up output. A manufacturing index based on a survey of euro-area purchasing managers increased to 56.6 from 54.2 in February. That’s above an initial estimate of 56.3 and the fastest pace since November 2006. A reading above 50 indicates expansion. An index of U.K. manufacturing rose to a 15-year high. European manufacturers are bolstering a recovery from near- stagnation in the fourth quarter as the euro’s 5.7 percent drop against the dollar this year makes euro-area exports more competitive. In China, manufacturing expansion accelerated in March and U.S. factory orders rose in February. Still, with unemployment at the highest in more than 11 years, euro-region consumers may keep spending plans on hold.

CIS countries

Russia’s central bank may halt its year-long rate cutting cycle on concern inflation will accelerate from the slowest pace in 12 years as demand recovers, according to Finance Minister Alexei Kudrin. “We still have a risk of accelerating inflation,” Kudrin said at a conference in Moscow last week. The pace of interest rate cuts “will not continue.” Inflation in the world’s biggest energy producer slowed to an annual 6.5 percent last month, its lowest rate since July 1998, after ruble gains suppressed import prices and demand remained sluggish. Still, stimulus measures are fueling consumer spending and will help the economy rebound from last year’s record contraction after the government raised expenditure four- fold over the past decade, Kudrin said. As soon as demand heats up, the risk of inflation will resurface. The economy may grow 6.5 percent this year, Morgan Stanley wrote in a report published last week, raising a previous estimate for 5.3 percent expansion. Economic output grew 0.5 percent last quarter, the first expansion since 2008, as manufacturing and service industries from banks to supermarkets recovered.
 

Alliance Bank, the second-largest Kazakh lender to default last year, said it completed restructuring 677 billion tenge ($4.6 billion) of debt. Under a plan accepted by creditors in December, all of Alliance’s obligations were “restructured and annulled in exchange for money, new bonds and shares,” the lender said in an e-mailed statement last week. The bank plans to start borrowing from abroad next year after markets open for Kazakh lenders, according to Chief Executive Officer Maksat Kabashev. The bank will in the meantime fund its operations with deposits and payments from its borrowers, he said. Alliance Bank became the first Kazakh lender to default last year. BTA Bank, AO Astana Finance and BTA’s Temirbank also defaulted, leaving the nation’s lenders seeking to reorganize $20 billion of debt.

- Written using materials from Bloomberg and  Reuters Research