Around 2 pm EST Comments from Jean-Claude Trichet, head of the ECB made the market swoon. The US equity market where riding high with the S&P 500 Index above 1180 making another 52 week high prior to the comments and the Euro was up on the day vs. the dollar. Over the course of the next 2 hours, the equity markets declined, with the S&P 500 Index closing down 2 points to 1165, and the Euro down against the dollar by 30 pips. Trichet said that The International Monetary Fund or any other body must not assume the responsibilities of euro zone governments in dealing with economic problems. Given that Germany and France believed this was a robust idea, the comments spooked the markets. The Euro, is now heading for support near 1.29.
In Economic news in the US, the Labor Department reported that initial claims for jobless benefits fell by 14,000 to 442,000 in the week ended Mar. 20. The previous week’s level was revised to 456,000 from 457,000. Total claims lasting more than one week, meanwhile, fell by 54,000 to their lowest level since Dec. 20, 2008. Economists surveyed expected initial claims to decrease by 7,000.
In Asia, Japanese corporate service price index was weaker than expected falling 1.3% year-over-year in February and the Jan series was revised down to -1.2% from -1.0%. Tomorrow Japan reports CPI figures and a slight moderation in the pace of deflation is expected, but the fact that it persists to such a degree means pressure will likely remain on the BOJ to do more QE.
In Europe, the euro zone money supply was much weaker than expected, contracting by 0.4% year-over-year. It has been contracting in November and Dec ember 09, but turned slightly positive in January 2010. One need not be a monetarist to appreciation that the contraction in money supply underscores the non-inflationary environment.
In the UK, February retail sales jumped 2.1%, well above market expectations but the downward revision to the January series and the hefty contribution of petrol sales undercut the headline surprise. The particularly harsh winter is distorting early Q1 data.
Of note, Governor of the Bank of Canada sounded more hawkish in a statement than has been seemingly more accepting of the strength of the Canadian dollar. He reminded investors that the pledge to keep rates at record low levels in H1 was “expressly conditional” on the outlook for prices. And he said he viewed the Canadian dollar’s exchange rate through the “prism” of the inflation target. He acknowledged that core inflation has risen faster than the BOC expected. The next key date in this regard may be the April 22, update of the BOC’s inflation forecast.