Important developments today:
1. Emerging market equities push toward three-month highs
2. U.S. unemployment rate steady in February
3. German factory orders from domestic firms soar in January
Emerging market equities push toward three-month highs. Developing-country shares advanced on Friday, pushing benchmark indices toward largest weekly gains in three months, on increasing sign that the global economic recovery is on firmer footing. The MSCI Emerging Market Index climbed 0.9% today, bringing its rise this week to 3.7%, the biggest weekly advance since the week ended December 4th. The EMI has rallied to highest levels in six weeks after a sell-off dropped prices by 13% from this year’s peak on January 11th. Notably, Russia’s Micex Index picked-up for a seventh day, the longest stretch of gains since July 2006, boosted by prospects for higher raw-materials prices and exports, after China said it plans to increase state reserves of commodities. Developing-nation debt also performed well, with the spread on the benchmark JPMorgan EMBI+ Index tightening by 8 basis points (bps) to 277bps.
Greek austerity/EU-aid tensions continue. Following successful placement of €5 billion ($6.8 billion) in 10-year bonds yesterday, in the wake of announcing additional deficit reduction measures amounting to €4.8 billion this week, Greek Prime Minister Papandreou begins a round of discussions in Luxembourg, Berlin, Paris and Washington in the coming days regarding a potential financial assistance package from the EU, member governments, or others(?). Differences among Euro Area members and the EU bureaucracy are increasing, with some country leaders suggesting that austerity measures taken by Greece are sufficient to shore up that country’s financial standing. In contrast, the head of the EuroGroup of Finance Ministers, Jean-Claude Juncker stated, “We’re telling financial markets: Look out, we are not abandoning Greece.”
Moreover, ECB President Jean-Claude Trichet urged Greece to halt its apparent informal discussions with the IMF, and work within Europe to tame its deficit. As protestors in Greece reacted to the announcement of additional austerity measures, the Greek government said the absence of European support might force it to work with the Fund on a financial aid package.
Source: Department of Labor
U.S. unemployment rate steady in February. Despite a spike in new layoffs sparked by the cold weather front that decimated the Northeast and forced businesses to halt operations temporarily, the unemployment rate remained stable at 9.7% in February. Payrolls dropped 36,000 following a revised 26,000 cut in January, according to the Labor Department [see ]. But the falloff in payrolls was substantially less than market expectations for a drop of 68,000 jobs. Sustained job growth may take some time to gain momentum, considering 8.4 million have been lost to date as a result of the financial crisis.
German factory orders from domestic firms soar in January. In a somewhat surprising, but largely encouraging development, orders received by German manufacturers from domestic customers jumped 7.1% in January (m/m) after having lain dormant for months. The gain was underpinned by substantial demand for capital equipment (up 10% in the month), suggesting that with export performance picking up, firms serving the overseas markets are re-starting investment spending following a long hiatus.
Orders from foreign customers picked up a more moderate 1.9% in January, though also underpinned by increased call for investment goods. In context, total orders grew 9.4% in January (saar), up sharply from the 3.7% momentum gains of December. “The numbers are amazing, but the strong tailwind from bulk orders isn’t sustainable,” in the view of Alexander Koch of UniCredit/MIB in Munich. “Foreign demand, especially from emerging Asia will continue to drive Germany’s recovery.”
Among emerging markets:
In East Asia and the Pacific, Malaysia’s exports surged 37% in January (y/y) beating most market forecasts and providing another indication that intra-regional trade is playing a large part in the Malaysian recovery. China’s government announced a commitment to rein in prices in the overheating property sector, by initiating controls on lending over the coming weeks.
In Latin America and the Caribbean, prices in Brazil rose 4.8% over the year to February, surpassing the government’s annual inflation target of 4.5% for a second month running.
In Central and Eastern Europe, Latvia posted a $768 million current account surplus for the final quarter of 2009 equivalent to 12% of GDP. This was larger than the third quarter surplus of 10% of GDP; and should Latvia’s surplus position persist, the country’s external debt burden may become less challenging to overcome in coming quarters.