Stocks Rally

March 17, 2010

Stocks advanced 1.2% in Japan, 2.2% in China, 2.1% in South Korea, 3.3% in Indonesia, 1.8% in Thailand, 1.7% in Hong Kong and 1.2% in Australia.  In Europe, the German Dax is 0.6% firmer, and the Paris Cac and British Ftse are each 0.4% higher.

Currency movements also reflect a greater preference for risk in the wake of the Fed’s decision not to change its interest rate guidance language.  The dollar is 0.3% firmer against the yen but has lost 0.7% against sterling, 0.6% versus the Australian and New Zealand dollars, 0.3% relative to the Swiss franc, and 0.2% against the euro and Canadian dollar.

Ten-year German bund yields eased one basis point, while gilts and JGBs remained steady.

Commodities strengthened.  Oil and gold rose 0.9% and 0.8% to $82.40 per barrel and $1131.90 per ounce.

The Bank of Japan did the expected, leaving its key overnight target rate at 0.1% where it has been since December 2008 and doubling its fixed-rate operations to Y 20 trillion (some $220 billion).  These are short-term (3-month) liquidity enhancements at 0.1% intended to spur corporate loans and reduce long-term interest rates.  They were introduced after an emergency meeting last December 1.  There are two tenders against pooled collateral of 800 billion yen each per week.  Today’s action came after heavy public pressure from politicians for more stimulus, and it drew two dissenting votes from the 7-person Policy Board.  Governor Shirakawa at a subsequent press conference denied this is quantitative easing and said the central bank cannot end deflation on its own.  There are no “miracles.”  The BOJ meanwhile left its economic assessment unchanged. 

Japan’s tertiary index, a measure of service sector activity, leaped 2.9% in January, three times more than expected on the strength of a 5.2% advance in wholesale and retail trade.  The index had dipped 0.1% in 4Q09 and by 3.5% from 4Q08.  January’s level was 2.3% above the 4Q09 level and only 0.8% lower than a year earlier.

Bank of England minutes from its meeting earlier this month revealed an as-expected unanimous 9-0 vote to leave the key rate at 0.5% and the asset purchase program capped at Gbp 200 billion (that is, on pause).  Policymakers agreed CPI inflation is increasingly likely to stay well above the 2.0% target over the months ahead and were somewhat concerned what such might do to inflation expectations.  At the same time, it is believed that the considerable slack in the economy and fragility of the recovery will eventually subject the CPI to downward pressure.

British labor statistics were better than expected.  The claimant count for unemployment dropped by 32.3K in February, the largest monthly decline since November 1997, and the claimant measure of joblessness slid to 4.9% after readings of 5.0% since September.  The ILO unemployment rate was 7.8%, a tenth of a percentage point less than expected.  Wages rose 0.9% on year in November-January, up from 0.7% in the year to 4Q09.  Wage growth was 1.4% excluding bonus pay.

Ecofin failed to reveal details of emergency loans to Greece or on a regulatory plan for hedge funds.  There is another summit meeting next week.  S&P confirmed Greece’s long-term rating of BBB+.

Australia’s index of leading economic indicators rose 0.2% in January, a third as much as December’s gain.  But housing starts soared 15.1% last quarter.

New Zealand consumer confidence fell to 114.7 in the first quarter of 2010 from a reading of 116.9 in the final quarter of 2009.

Euroland labor costs decelerated last quarter to an on-year rise of 2.2% from 3.0% in the year to 3Q09 and 4.5% in the year to 4Q08.  Regular pay rose 2.0% on year, down from 4.3% in the year to 4Q08, while benefits went up 2.7% versus a climb of 4.9% in the prior statement year.

Construction output in Euroland fell 2.2% in January after back-to-back 1.0% drops in November and December.  Such was 12.5% lower than in January 2009.

South African retail sales posted a smaller 1.7% on-year drop in January than the 3.7% decline in the year to December.  Analysts expected a 2.4% decrease.

Iceland’s central bank implemented a further 50-basis point key interest rate reduction to 9.0%.

Finnish producer prices rose 1.1% in February and were 1.2% greater than a year earlier.  Russian producer prices jumped 2.3% last month and to a 12-month increase of 22.9%.

Strauss-Kahn, chief of the IMF, called the Chinese renminbi “much undervalued.”

South Korea’s jobless rate fell to 4.4% in February from 4.8% in January.

Analysts anticipate a 50-basis point central bank rate increase in BrazilU.S. producer prices get released later today, as do figures for Canadian wholesale sales.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.

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