Stocks, Euro and Commodity Prices Score Solid Gains

April 20, 2011

Financial markets reacted positively to a slew of corporate earnings reports that surpassed expectations.

Equities rose 1.8% in Japan, 1.9% in India, 2.2% in South Korea, 2.0% in Taiwan, 1.6% in Hong Kong, 1.7% in Indonesia, 1.4% in Pakistan, 1.1% in Thailand and 1.0% in New Zealand.  This strong rise intensified in Europe, with the German Dax showing a gain so far of 2.4% and the Paris Cac and British Ftse advancing 2.1%.

The dollar fell 1.0% against the euro.  It also lost 1.3% against the kiwi and Australian dollars, 0.6% versus the Swiss franc, 0.4% relative to the Canadian dollar, and 0.2% against sterling.  The yen was the weakest G7 currency overnight, dropping 0.4% against the dollar.

Gold is presently above $1500 at $1503.50 per ounce, up 0.6%. Oil prices are 1.1% higher at $109.50 per ounce.

The yields on ten-year German bunds and British gilts are three basis points higher.

Several central banks have been in the news.

  • Minutes from the Bank of England’s April 6-7 policy meeting revealed the same voting pattern as at the previous monthly meetings in February and March.  A six-person majority chose not to change to 0.5% Bank Rate, as Sentance dissented in favor of a 50-basis point hike and Weale and Dale wanted to raise such by 25 bps.  Adam Posen, the sole dissenter in an 8-1 vote to leave the ceiling on asset purchases at GBP 200 billion, again preferred to raise quantitative easing to a limit of GBP 250 billion.
  • The Swedish Riksbank Executive Board rise its repo rate by 25 basis points to 1.75%.  This was the sixth such increase following moves in July, September, October and December of 2010 and mid-February of this year.  Similar to the tightening in February, Svensson and Ekholm dissented in favor of not rate increase now and a somewhat flatter future rate path.  The majority of policy makers chose not to change the indicated likely future trajectory of their rep rate.  Their goal is to gradually normalize short-term interest rates, to secure medium-term inflation around 2%, to ensure that capacity use doesn’t rise too far, and to keep inflation expectations stable.
  • By a 6-1 vote, policymakers at the Bank of Thailand voted to raise their benchmark one-day repo interest rate by 25 basis points to 2.75%.  Like the Riksbank, the Bank of Thailand has now implemented six hikes of 25 basis points starting in July 2010.  This was the fourth increase in a row.  The impact of Japan’s earthquake on Thailand is projected to be short-lived, and commodity prices are expected to remain elevated.  Core CPI has climbed to 1.62% as of March from 1.32% in January, and total inflation of 3.14% compares to 2.87% in February.  Higher administrative prices are also foreseen.  The CPI target ceiling this year was set at 3%.
  • In Iceland, the Sedlabanki kept the 7-day collateralized lending rate unchanged at 4.5%.  That’s the same decision as made in last month’s meeting.  The rate had previously been reduced extensively, but officials now concede a worse near-term inflation outlook with inflation expectations also pushing higher.  Even though growth prospects have also worsened, monetary easing is on hold.
  • Investors await a likely rate increase in Brazil later today.  The actions from central banks in the U.K., Sweden, and Thailand had been expected.

Japan’s seasonally adjusted customs trade surplus of JPY 96 billion in March was the smallest in 22 months, as exports plunged 7.7% on month.  The unadjusted surplus fell to JPY 197 billion from JPY 932 billion in March 2010, with exports posting a drop of 2.2% on year versus an 11.9% advance in imports.  The surplus in fiscal 2010 of JPY 5.392 trillion was similar to JPY 5.187 trillion accrued in fiscal 2009.  Japan’s earthquake hit exports harder than realized.

Japan’s tertiary index, a gauge of service sector activity, rose 0.8% in February (before the March 11 quake) following dips of 0.2% in December and 0.1% in January.  The index was 2.0% higher than a year earlier in February.

China’s index of leading economic indicators firmed 0.3% in February after declining 0.5% in December and rising by 0.2% in January.  Speculation persists that Chinese authorities will allow a quickening rise of the yuan to counter inflation and perhaps even implement a stochastic one-time revaluation as they did in July 2005.  The central bank governor called reserves excessive.

Australia’s index of leading economic indicators rose 0.4% in February after declining 0.1% in the prior month.  Australia’s terms of trade (export/import price ratio) rose strongly last quarter.  Export prices surged 5.2% and 21.0% on year, while import prices advanced 1.4% on quarter but only 0.2% on year.  A rising terms of trade is fueling Aussie incomes and laying the basis for stronger personal consumption in the future.

Malaysian consumer prices firmed 0.1% in March and 3.0% on year, up from a 12-month 2.9% advance in February.  Taiwanese export orders in March were 13.4% higher than a year earlier.

French new manufacturing orders jumped 2.4% in February after diving 6.1% in January.  Such were 13.6% greater than in February 2010.  Italian industrial orders increased 1.9% in February and 16.2% from a year earlier.  industrial turnover rose 1.5% in February and 12.8% on year.

German producer prices rose less sharply than forecast in March, increasing 0.4% on month and 6.2% on year.  Non-energy producer prices firmed 0.2% and 4.4% on year, while energy costs jumped 1.2% on month and 10.5% from March 2010.

Dutch consumer confidence printed at minus 10 in April after minus 8.  The result was weaker than analysts expected.

The Greek current account deficit narrowed 30% on month to EUR 1.96 billion in February.

One measure of British expected inflation over the coming year softened to 2.9% this month, lowest in seven months.  This could make the Bank of England majority even more predisposed against raising interest rates.

Icelandic wage inflation firmed to 4.4% in March from 4.2% in February even though the jobless rate of 7.8% last quarter was above the 4Q10 level of 7.4%.

South African consumer prices rose 1.2% last month, lifting the 12-month rate of increase by four-tenths of a percentage point to 4.1%.  That’s a 9-month high.

U.S. existing home sales and the weekly tally of oil inventories will be reported.  Many markets close Friday for the Good Friday/Easter holiday.

Copyright Larry Greenberg 2011.  All rights reserved.  No secondary distribution without express permission.

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