Important developments today:
1. Emerging market equities climb to 20-month high
2. U.S. wholesale inventories increase in February
3. German exports rise in February, but momentum sharply reduced
Emerging market equities climb to 20-month high. Developing country stock prices increased fairly sharply today, driving the overall benchmark index to a 20-month high, as investors’ growing optimism over global economic recovery increased their appetite for emerging market assets. Fading worries over Greece’s debt woes as a source of contagion for EM markets also improved buyer confidence. The MSCI Emerging Market Index advanced 0.7% on Friday, bringing its weekly gain to 1.5%. Of note, emerging-market equity funds posted strong net inflows of $3.27 billion, carrying year-to-date flows to $10.8 billion, as firm commodity prices boosted flows to Russia, South Africa, and the Middle East. Meanwhile, emerging-market bond spreads over comparable U.S. Treasuries tightened by 3 basis points (bps) to 239bps today, resulting in a net narrowing of 9bps for the week, according to the JPMorgan’s EMBI+ Index. This represents a sharp falloff from this year’s high 316bps spread in early-February and just a fraction of the recent cyclical peak of 865bps in late-October 2008.
U.S. wholesale inventories rise in February. Inventories at the wholesale level increased 0.6% in February (m/m) following an upwardly revised gain of 0.1% a month earlier, according to today’s report from the Commerce Department. Inventories of non-durable goods were up 0.8%, reflecting increasing stockpiles of petroleum; durable goods inventories increased 0.5% (m/m), including a 0.2% gain in vehicle stocks. The value of industrial sales climbed to $338.7 million, up 0.8% (m/m) to the highest level since October 2008, and registering an 11th month of improved sales at the wholesale level.
At the current sales pace, the inventories/sales ratio remained unchanged from January at 1.16 months. A record reduction in inventories in 2009 has created the space manufacturing production to push higher, and factories are set to boost production as the inventory cycle in the U.S. continues to evolve.
German exports up in February, but momentum plummets. Following a sharp 7.8% (m/m) contraction in overseas sales in January (in part linked to inclement weather in Europe) the value of German exports rebounded to a 9.7% gain in February, the largest monthly advance since June 2009. Import values increased 2.7% in the month, and the resultant trade balance surged to a massive €12.6 billion ($16.8 billion) from €8 billion in January (a recent point of contention during discussions regarding the EU financial package for Greece).
On the pick-up in exports, commentators have been exceptionally upbeat. “The export-led recovery is still intact”, notes Carsten Brzeski of ING Group in Brussels. “Positive growth surprises are still in the pipeline”.
However, when the influence of the string of weak performance in both exports and imports are taken into account, a remarkable falloff in the momentum (or annualized rolling-quarter growth) of German exports volumes transpired in February, with shipments diving to decline of 24% (saar) in the month from a gain of 6.2% in February. In contrast, year-on year growth in export volumes are just breaching positive territory for the first since the onset of crisis, indicating how much further progress needs to be made to indeed enjoy an “export-led” recovery in 2010.
Among emerging markets:
In East Asia and the Pacific, China’s passenger car sales jumped 63% in March (y/y) to 1.26 million units, as demand was fired by government stimulus policies. Automobile sales in China are expected to rise by 10% on average over the coming five years on account of current low penetration and rising incomes.
In Latin America and the Caribbean, Uruguay's unemployment rate surged to 7.5% in February, up from 6.3% in January, according to the INE.
In Sub-Saharan Africa, South Africa’s Eskom Holdings Ltd., the state-owned power utility received a $3.75 billion World Bank loan to help finance the building of a 4,800 megawatt plant, wind and solar projects, and low carbon-emitting developments to boost electricity supply and help avoid blackouts that have held economic growth hostage in intervals over the last several years.