Equity markets remained steady after yesterday’s surprising rally to begin the month of September. Naysayers point out that August also began with a very large rally and with the US Non-farm payroll report being released on Friday at 1230 GMT, the market could easily tumble. The markets continued to grind higher as better than expected pending home sales and a decline in jobless claims pushed the markets higher. For the trading session, the S&P 500 index climbed 9 points to 1090.
The gains came as the National Association of Realtors’ index for pending sales of used homes increased 5.2% to 79.4. The report represents a surprising reversal after the index fell two months in a row following the April 30 expiration of a tax credit for buyers. Economists had expected a 1% drop. Jobless claims fell by 6,000 to 472,000 in the week ended Aug. 28, the Labor Department said. New claims for the previous week, ended Aug. 21, were revised upward to 478,000 from 473,000. Economists surveyed had predicted filings would decline by 3,000.
Meanwhile, the Labor Department reported Thursday a 1.8% decrease in nonfarm business labor productivity from the prior quarter. This was close to expectations, as economists surveyed by Dow Jones Newswires were looking for a 1.9% decline in second-quarter productivity.
The European Central Bank raised its central forecast for 2010 economic growth in the euro zone to 1.6% from 1%, President Jean-Claude Trichet said Thursday. Mr. Trichet said the ECB’s staff now expects gross domestic product for the 16-country area to grow by between 1.4% and 1.8% this year. When the ECB had last updated its forecasts three months ago, it had forecast a range of 0.7% to 1.3%. For 2011, the ECB raised its range of forecasts to between 0.5% and 2.3%, from an earlier estimate of 0.2% to 2.2%. That implies a midpoint of 1.4%, up from 1.2% three months ago.
The premium Greece, Spain and Portugal pay over Germany on 10-year bonds is greater than it was when Europe announced their so-called 750 billion euro package. The true value was half as that when taking out the 250 billion euro that was said to come from the IMF but there was no commitment to give any funds to a region in general, and EU’s 60 billion euro contribution (as EU members not in the euro zone balked). Lastly, given that the vast majority of members do not have triple A ratings, the only way the EFSF could issue tripe-A paper is if the amount guaranteed was about 20% more than the amount of bonds issued.
Doubts about the trajectory of the global economy were not sufficient to keep Sweden’s Riksbank on hold. The 25 basis rate hike was partly justified by the upgraded economic assessment. This year’s GDP forecast was revised to 4.1% from 3.8% previously, though next year’s forecast was shaved to 3.5% from 3.6%. Inflation forecasts were skimmed 1.1% this year form 1.2% and 1.9% next year form 2.0%. The board still contains divergent opinions, mostly seemly over timing, but barring a major negative shock continued gradual tightening by Sweden the most likely scenario. Even though the euro losses against the krona have been extended, the momentum appears be flagging. Ironically, and counter-intuitively, Norway’s central bank edged its growth forecasts lower and the Norwegian krone is outperforming the Swedish krona (marginally). Note that the head of Norway’s stats offices Olsen is seen as the likely successor of the central bank governor Gjedrem who will step down at the end of the year, seems more dovish, warning that recessionary conditions persist in Norway.