Stronger Tone in Equities

February 22, 2013

Stocks in Europe are up 1.4% in Italy, 1.3% in Spain, 1.7% in France, 1.0% in Germany, and 0.8% in Britain.  Share prices rose 0.7% in Japan, 1.1% in New Zealand, 0.8% in Australia, 0.5% in Hong Kong, 0.4% in Indonesia and 0.2% in South Korea, but China’s market fell by 0.5%.

The U.S. dollar dropped 0.8% and 0.5% against the Australian and New Zealand dollars but other key changes in the buck do not exceed 0.1%.

The ten-year British gilt yield is three basis points lower.  Its German and Japanese counterparts are unchanged and off a basis point, respectively.

Oil and gold prices have firmed 0.2% to $93.01 per barrel and 0.1% to $1580.60 per ounce.

The EU Commission published revised 2013 GDP growth forecasts.  For the whole euro area, GDP is projected to contract 0.3%.  Negative growth is predicted in eight countries including Italy, Portugal, the Netherlands, Greece, and Cyprus with the later two declines at 4.4% and 3.5%.  Projected German growth is now 0.5%, and French GDP is seen eking out a gain of just 0.1%.  The collective euro area budget deficit is put at 2.8% of GDP, and likely unemployment was revised to 12.2% from an estimate of 11.8% made in November.

Japanese Prime Minister Abe, who enjoys a 70% voter approval rating, is in Washington to meet President Obama.  Abe’s BOJ selections are anticipated soon after he returns to Tokyo.  Finance Minister Aso said the next central bank governor need not have prior experience at the Ministry of Finance.

Reserve Bank of Australia Governor Stevens called the Bank’s interest rate of 3.0% since December appropriate and said FX intervention would be done only if the Aussie dollar became seriously overvalued.

The better investor tone was helped by an upbeat Chinese report on property prices, up 0.8% in January with increases in 53 of 70 cities.

The mood was further helped by a much greater-than-predicted improvement in Germany’s business climate as reported by the IFO Economic Institute.

  • A 3.1-point on-month increase in the IFO business index to 107.4 was the largest advance since July 2010 and brought the level to a ten-month peak.
  • According to IFO, German is regaining momentum, with current conditions rising 2.1 points to a reading of 110.2 and expectations jumping by four points to 104.6, best in over a year.
  • Among sectoral components of the business climate index, manufacturing increased 6.7 points on month.  Construction went up 7.1 points.  Wholesaling rose 7.7 points, but retail was unchanged.
  • In the IFO index for services, the overall reading of 19.0 in January was the best score since last June and up from 15.4 in January and 8.5 in November.

Germany released its second estimate of fourth quarter GDP, showing a 0.6% quarter-over-quarter decline and a working day-adjusted on-year increase of 0.4%.  Real GDP rose 0.7% for 2012 as a whole.  In comparisons of 4Q to 3Q, government spending and personal consumption edged 0.4% and 0.1% higher but investment in machinery and equipment dropped 2.0%, and exports did likewise. Net foreign demand exerted a 0.8 percentage point drag on GDP growth, but is doing better in the early going of 2013.

Germany’s index of leading economic indicators rose 0.5% in December according to the Conference Board, but the coincident indicators gauge dipped 0.1%.

Italian consumer confidence improved 1.3 points to a reading of 86.0 in February.  Swedish consumer confidence improved 1.9 points to negative 1.0 this month.  Czech producer price inflation ticked up 0.2 percentage points to 1.4% in January.  Icelandic wage inflation accelerated from 4.7% in December to 5.0% in January.  Austrian industrial output rose 0.6% on month and 2.5% on year in December.

Dutch business sentiment went up two points this month but remained below zero at minus 3.6.  Dutch consumer spending dropped 1.0% in December.

Fourth-quarter GDP growth was revised upward in Singapore and Taiwan to 1.5% and 3.7% from a year earlier.  Singapore posted a SGD 12.8 billion current account surplus, which was 24.6% smaller than the 3Q surplus.

No U.S. data releases of significance are due today, but Canada reports both retail sales and consumer prices.  Tarullo, Powell, and Rosengren of the Federal Reserve speak publicly today.  Colombia’s central bank is expected to cut its benchmark interest rate.

Copyright 2013, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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