The combination of money on the sidelines and strong technical factors pushed riskier assets up again, which created a new closing 2010 high for the S&P 500 Index. The US equity indexes are up 8 of the last 10 days. The Euro rallied by a third of a big figure and oil prices inched up slightly.
Some news that helped the markets was a quarterly Federal Reserve report that said U.S. households’ total net worth climbed 1.3% in the fourth quarter, to $54.18 trillion from the third quarter’s $53.49 trillion. For 2009 as a whole, net worth rose 5.4%. Household net worth is assets, such as home equity, minus liabilities, such as mortgage debt. A large chunk of the increase in net worth came from a drop in household debt, as an increasing number of financially stretched consumers defaulted on mortgage and credit-card debts. While the defaults are painful for families and costly to banks and investors, economists say they are also speeding the financial rehabilitation necessary for a return to robust growth.
Canada reported a larger than expected trade surplus earlier today. At C$0.8 billion, it was four times larger than expected and the December figures were revised to show a C$0.1 billion surplus instead of a C$0.2 billion deficit. Canada also reported a strong rise in Q4 capacity utilization rate to 70.9% from a revised 68.7% in Q3 (previously estimated at 67.5%). The unemployment rate is expected to have remained steady at 8.3%. It appears that Canadian unemployment may have peaked in the middle of Q3 09 at 8.7%.
The buoyant state of China’s economy was in the limelight overnight. This is not just an externally driven economy, the strong February retail sales captured a very strong consumer sector, with a yearly growth rate beating expectations, at 17.9% y/y. February industrial production also impressed, with a 20.7% yearly rate, beating expectations. However, it is the February CPI that has caught most headlines this morning, with a yearly inflation rate firming to a stronger than expected 2.7%, up from 1.5% previously. This morning’s data highlight overheating economic conditions, with the Jan/Feb reserve requirement hikes not filtering through to the economy just yet.
In Japan, the economic environment is not all that rosy and the final Q4GDP was revised down, to 0.9% (from 1.0%), with the deflationary forces yet again in the limelight as the GDP deflator stood at -2.8% y/y.
The RBNZ left rates on hold (at 2.5%) and reiterated that rates would remain on hold until around mid-year but also signaled that the pace of tightening would be gradual. Governor Bollard stated that rate hikes may be less than in previous cycles and that growth is likely to be subdued relative to past recoveries including the RBNZ’s forecast for 4.4% y/y growth in Q111. Inflation is expected to remain within target and Bollard noted that financial conditions are tighter than the ODR would imply reinforcing his point that the ODR is likely to be hiked by less than in previous cycles.