Important developments today:
1. Emerging market equities climb to two-month high
2. U.S. Producer prices ease on energy costs in February
3. Russian industrial output rises in February at slower rate than in previous month
Emerging market equities climb to two-month high. Developing-country shares jumped in Wednesday trades, driving the MSCI benchmark index to the highest level in two months. This occurred as the Federal Reserve pledged to keep interest rates at record lows to stimulate economic growth, which provided support to riskier assets elsewhere. Fading concerns over Greece’s sovereign debt woes and better-than-expected economic data in the United States also served to improve investor confidence.
The MSCI Emerging Market Index advanced 1.4% today, poised for the steepest gain in eight days, and setting at the highest close since January 19. Meanwhile, emerging-market bond spreads over comparable U.S. Treasuries tightened for the first in four days, dropping 4 basis points (bps) to 259 bps today, according to JPMorgan’s EMBI+ Index. This represents a sharp fall from this year’s high of 316 bps of early-February, now just a fraction of the recent cyclical peak of 865 bps in late-October 2008.
World Bank quarterly report on China raises risk issues on stimulus. The China Quarterly Update, produced at the World Bank’s Beijing office and released today, received much press attention, as it highlighted the risks that could be triggered by China’s massive fiscal and monetary stimulus programs that have served to buoy the country’s GDP growth through the recession. Large increases in asset prices, a housing bubble and potential bad debts from the financing of local government projects top the list of concerns. At the same time, the Bank’s China office raised its economic growth forecast for 2010 to 9.5% from 9% published in January. The Quarterly Update aligns in large measure with the views of private sector analysts. For example, economists at Morgan-Stanley this week said higher reserve requirements for banks might be imminent, and interest rates could start to climb as early as next month.
Source: Department of labor
U.S. producer prices ease on energy costs in February. A 0.6% decline in producer prices in February (m/m) comes on a drop in fuel costs (as stocks of many refined products remain at exceptionally high levels—diesel, for instance). This follows a 1.4% gain in the month preceding, which was driven by heating oil and other fuel costs heading in the opposite direction (as severe winter weather threatened the Eastern portion of the country). Vagaries of energy costs aside, core PPI (which excludes energy as well as food) advanced 0.1% in February on the heels of a 0.3% gain in January, signaling that there are few fundamental cost pressures in the pipeline at this stage of the recovery.
But when observed at an annualized pace, PPI is up at a 9.8% rate (saar)—a reflection of the buildup in gasoline and other energy costs during the winter months; and the year-on-year measure stands within a high 5% growth range—suggesting that such price changes can be ignored only at risk in compiling policy decisions geared to a 6-12 month horizon [see ].
Among emerging markets:
in Central and Eastern Europe and the CIS, Russia’s industrial output rose 1.9% in February from a year ago, providing signs of a nascent recovery. Output expanded 4.8% on a month-to-month basis.
In Sub-Saharan Africa, consumer confidence in South Africa has risen in the first quarter of this year, according to the First National Bank and the Bureau for Economic Research. The confidence index has increased 9 points to 15 in the first quarter, indicating consumer expectations for a sustainable recovery.