The US Dollar lost some momentum by the end of the week after recording the highest level in few months against the Euro, Pound and the Yen. Indeed, the looming FOMC meeting on March 20, the record level of the equity markets in the US and the better data coming from Asia, have turned global markets into a risk on mode, putting some weight on the US Dollar. Globally, Australia posted much better than expected jobs number, Kuroda won a majority of votes in the upper house in the Japanese parliament and Norges bank decided to leave interest rates unchanged for longer than anticipated.
The positive US data continued to dominate markets this week with much stronger than expected retail sales figures, weaker jobless claims and continued strong business optimism.
It is worth noting that equity markets in the US continue marching higher with record low volatility. The Dow is leading the others gaining almost 11 percent year to date so far, while the S&P trails close behind gaining almost 10 percent. Bond yields in the US have been moving higher with the 10 years yield at 2.03 percent while German 10 year yields are at 1.71 percent
On the foreign exchange side, Markets closed the week with a stronger Sterling Pound. Profit taking pushed the dollar lower while a short squeeze pushed GBPUSD through multiple levels. After reaching a low of 1.4832 on Tuesday, the Pound ended the week at 1.5113. Euro on the other side behaved in a more subdued manner. After dropping to a low of 1.2911 after the stronger retail sales in the US, the currency closed the week at 1.3076.
In the commodity complex, Gold continued to impress climbing to a high of $1,599.10 as the unwinding process that was in place for couple of weeks may have ended. The looming FOMC meeting on Wednesday has provided new reason for investors to re-enter the market.
Strong Retail Sales in the US Suggest Consumers Ignoring Tax Hikes.
Retails sales in the US climbed twice as much as economists had forecasted in February, showing that the recovery remains on track and job prospects are helping consumers’ sentiment. Indeed, February retail sales significantly topped expectations, rising 1.1 percent in the headline following an upward revision to January (+0.2 percent vs. +0.1 percent as previously reported). Although the data showed large declines occurred in the furniture/furnishings, sporting goods and department stores, the declines were offset by large gains in autos, building materials and gas stations sales.
While the retail sales gains are impressive, it is even more so in light of the rise in gas prices, increase in taxes, delayed tax refunds and widespread inclement weather in February. These numbers are likely to significantly lift analysts’ GDP growth expectations for the quarter.
Small Business Confidence Rising to Healthy Levels
Small business confidence rose slightly to 90.8 and employment improved. The National Federation of Independent business report showed a better tone for job openings and the fewest workers on record were fired in January. The survey showed 73 percent plan no hiring changes in Q2 this year. Another 18 percent look to add staff, up from 17 percent last time while 5 percent expect to cut hiring, down from 8 percent. The hiring outlooks were positive in nearly all 13 industries in the US.
In another report, Business Roundtable’s CEO Economic Outlook Index rose to 81.0 in March, up from 65.6 in Dec. The increase in confidence reflected improved expectations for sales and plans to boost US capital spending over the next six months despite just 29 percent were planning to boost US employment over the next six months, the same percentage as in December.
The US CFO survey climbed to 55.3, the best level seen last June. CFOs however only expect a 1.8 percent real GDP growth this year. In summary, these reports project a better economic situation in the US than we see in many global regions, explaining the upgrades in GDP growth expectations that we have seen lately from many analysts.
Europe & UK
Europe Torn Between Austerity Measures and the Need For Growth
While the French, Spanish and the Italian economies continue to struggle, and popular discontent spreads across Europe, Angela Merkel is likely to be confronted this week end to end the Austerity approach that seems to be hurting Europe instead of generating growth. The French president Hollande is battling to appease voters, while the German economy continues to outperform its counterparts.
Facing a re-election in October, Angela Merkel is also under domestic pressure to maintain Germany’s insistence that long-term growth can only be “bought” by austerities and financial reforms. She is expected, however, to agree to a form of words to satisfy France and Spain and help to ease the political deadlock in Italy.
Spain Attempting to Help its distressed Housing Market
In a bid to help the housing market, Europe highest court ruled that Spain’s mortgage laws were too harsh for borrowers struggling to pay their loans. According to Reuters, the European Court of Justice decreed that Spanish judges should be allowed to halt evictions when homeowners contest abusive clauses in their contracts, such as excessively high interest rates when a loan falls into default. The government said it would incorporate the ruling of the European court into a new law that is currently being debated in parliament.
Asia
Japan Parliament Approves the New Central Bank Governor
Japan Parliament approved Haruhiko Kuroda over the position of the governor of the Bank of Japan. The BOJ’s first regular Policy Board meeting under the new leadership team is scheduled from April 3 to 4, however there has been market speculation that an emergency policy meeting will also be held soon to consider additional easing measures, such as boosting purchases of government bonds with longer-term maturities.
THE PENINSULA
