Investors were patiently marking time while they awaited the first Federal Reserve Open Market Committee meeting under new chairman, Ben Bernanke. Hopes that the FOMC might soon reach the end of their interest-rate increase cycle were dashed after the chairman's mildly hawkish speech to the New York Economics Club. Analysts say that unless the Fed sends a strong signal at next week's meeting, uncertainty in the market place will remain over how high the Fed will go. And between the March and May meetings there will be a lot of new economic data for the Fed and investors to digest.
While stocks were mixed in Asia, they were on the whole positive elsewhere helped by tantalizing merger and acquisition news. The downside for technology stocks was the news that Microsoft was delaying the launch of its new Windows software. On the week, only the Hang Seng and Kospi were down in Asia while in North America, the Bolsa barely edged downward.
Global Stock Market Recap
Europe and the UK
The FTSE dawdled around the 6000 level last week and managed to close above that level on Wednesday and Friday. The index had not seen this level since February 2001. Investors were inspired by a spate of merger and acquisition proposals. The FTSE also benefited by the announcement in the annual budget that the introduction of real estate investment trusts (REITS) would be eased. The CAC and DAX were also stimulated by merger and acquisition news in the drugs industry. The DAX was higher thanks to better-than-expected earnings from Lufthansa.
Bank of England minutes from its March 8th and 9th meeting were overshadowed by Chancellor of the Exchequer's annual budget message Wednesday. The minutes showed that the Monetary Policy Committee voted eight to one to keep its key interest rate unchanged at 4.5 percent. For the fourth consecutive month Stephen Nickell was the lone dissenting voice, voting for a rate reduction. His term on the MPC expires on May 31st. At that time he will be replaced by David Blanchflower, a U.S. citizen and economics professor at Dartmouth College in Hanover, New Hampshire.
Asia/Pacific
The Nikkei and Topix continued to gain as the last week of the fiscal year approached. The Japanese new fiscal year begins on April 1st. In the current fiscal year, the Nikkei is up 41.9 percent while the Topix has gained 42.9 percent. A positive note has been a revival in the property market. The average price of commercial land in Tokyo, Osaka and Nagoya urban areas gained 1 percent in 2005 according to the Ministry of Land. It was the first increase in 15 years. Commercial land prices nationwide were down by the smallest amount since 1991. Bank stocks were up on speculation that loan demand for property investment will increase and boost earnings.
The all ordinaries ended the week above the landmark 5,000 level. BHP Billiton, the world's largest mining company, and the Rio Tinto Group, the third largest mining company, were up thanks to record high copper prices and continued robust oil production. Both companies indicated that demand for commodities remains very strong. The index is up 6.2 percent in 2006.
Currencies
The dollar regained the upper hand last week as both the euro and yen fell victim to the stronger currency. Traders interpreted remarks by various central bankers including Fed Chairman Ben Bernanke to mean that U.S. interest rates would continue to climb apace. In contrast, the rhetoric in Japan seems to emphasize that any change in the zero interest rate is still many, many months away. And a member of the monetary policy board said it was too soon to abandon the bank's five-year ultra-loose monetary policy because deflation may not yet have been defeated.
Enthusiasm for Australian stocks did not carry over to the Australian dollar. The dollar declined as traders fretted about the narrowing interest rate spread with the United States. As carry trades are being unwound, high-yielding currencies such as the Australian and New Zealand dollars are being sold off. Before the Fed began increasing interest rates, the spread between Australia and the U.S. was as high as 450 basis points. At that time, the Reserve Bank of Australia had a policy interest rate of 5.5 percent while the fed funds rate was 1 percent. But the spread narrowed as the RBA left their rate unchanged while U.S. rates edged consistently upwards to the current 4.5 percent. Now the spread is only 1 percent. And this is sure to narrow again this week when the FOMC as everyone expects increases rates by another 25 basis points.
Indicator scoreboard
EMU - January seasonally adjusted merchandise trade deficit was €2.5 billion, about the same as in December. The growing deficit is being attributed to oil prices. On an unadjusted basis, the deficit was €10.8 billion. Imports were up 1.3 percent while exports dropped 8 percent.
Germany - February producer price index was up 0.7 percent and 5.9 percent when compared with last year. Higher energy prices once again were blamed for the increase. Excluding energy the PPI was up a tame 0.2 percent and 1.1 percent on the year.
France - February consumer spending on manufactured goods was up 1.8 percent and 4.5 percent when compared with last year. Clothing sales were up 6.3 percent while household durables climbed 3.1 percent. Auto sales were up 1.1 percent after sinking 3.1 percent in January. Other manufactured goods (including cosmetics, drugs, car parts, jewelry, photo and sporting goods) dropped 0.5 percent.
Italy - Fourth quarter unemployment rate remained at 7.7 percent for the third quarter. The seasonally adjusted number of unemployed (or job-seekers) climbed to 1,898,000 people after having fallen for three consecutive quarters. Employment was up 0.2 percent primarily in part-time and temporary jobs. Unemployment is three times higher in the South compared to North and Central Italy.
January retail sales were up 0.1 percent and 1.8 percent when compared with last year. Food sales were up 0.3 percent and 2.4 percent on the year while non-food sales were unchanged on the month and up 1.7 percent on the year. These data are not as closely watched because they show little relationship to quarter GDP consumer spending.
Britain - February consumer price index was up 0.3 percent and 2 percent when compared with last year. The price of recreation and culture items such as computer games and newspapers, books & stationery provided the upward push. This increase was partially offset by a decline in airfare prices. Core CPI, which excludes energy, food, alcoholic beverages and tobacco, was up 0.3 percent and 1.4 percent on the year. In addition to rebasing the CPI to 2005, ONS also published a new measure of the CPI, CPIY which excludes the impact of indirect taxes.
Asia
Japan - February merchandise trade surplus was ¥955.7 billion. Imports jumped 30 percent while exports were up 21 percent on the year. Export growth accelerated after slumping in January when the Chinese Lunar New Year holiday curbed production among trading partners in Asia, which account for about 60 percent of Japan's goods shipped overseas. Delayed purchases of Japanese goods from countries such as China and South Korea gave exports an extra boost in February. Japan had its first trade deficit in five years in January as export growth was reduced by two-thirds because of the holiday. Exports to Asia were up 23 percent. On a seasonally adjusted basis, the trade surplus was ¥682.6 billion. Exports were up 3.3 percent and imports increased 1.9 percent from January.
January tertiary index was up 2.2 percent and 2.4 percent when compared with last year. The tertiary index reflects activity in 11 service industries, among which are utilities; transport; telecommunications; wholesale and retail; finance and insurance; real estate; restaurants and hotels; medical, health care and welfare.
January all industry index was up 1.4 percent and 2.1 percent on the year. The all industry index takes a reading of activity in the 11 industries that comprise the tertiary index combined with activity in the construction, agricultural and fisheries industries, the public sector and industrial output. This index is considered a close approximation for gross domestic product growth as measured by industrial and service sector output.
Americas
Canada - January retail sales were up 1.4 percent and 6.9 percent when compared with last year. Sales were buoyed by gift card redemptions. This is the third year in a row that sales were strong in January. Sales in all sectors were up with the exception of food and beverage, which were down 1.2 percent. Excluding sales by dealers of new, used and recreational vehicles and auto parts, retail sales were up 1.4 percent. In constant dollars, retail sales were up 0.9 percent.
Bottom line
After a rather slow data week, investors will once again be besieged by economic news. Undoubtedly, all eyes will be focused on the FOMC meeting announcement on Wednesday. The parsers will be looking to define the Bernanke Fed vs. the Greenspan Fed by way of the post-meeting announcement.
Spring has sprung! Daylight saving time begins on Sunday, March 26th in the UK and Europe. The U.S. goes on daylight saving time a week later while Australia leaves DST at that time.
Marking time
