Sentiment: The "New QE" On The Mind
Any and all negative overnight news are now completely ignored as the scramble for risk hits the usual fever pitch following Bernanke's latest attempt to transfer cash from safe point A to ponzi point B, aka stocks. First, China's industrial firms suffered a rare annual drop in profits in the first two months of 2012 mainly in petrochemicals, metals and auto firms, the latest signs of weakness in the world's No. 2 economy and reinforcing the case for policy easing, according to Reuters. This was the first Jan-Feb profits downturn since Jan-Aug 2009. Profits fell 5.2 percent so far in 2012, according to the industrial profitability indicator, published by the National Bureau of Statistics (NBS) every month. The last period that China reported nationwide industrial profit fall was in the first eight months of 2009. Then there was the German GfK Consumer Confidence which unlike yesterday's IFO, missed: nobody cares. Also on the negative side was an earlier auction of Spanish Bills which sold EUR 2.58 billion, just barely off the low end of a target issuance of EUR 2.5-3 billion. As noted however, neither this, nor the series of US disappointments which looks set to end March with 15 of 17 estimate misses is relevant. To wit: French consumer confidence soared to 87 on expectations of 82, as the easiest and lowest common denominator to boost risk assets is now abused everywhere, by UMich, by Germany and now by France. And why would people not be confident - stocks everywhere are higher despite fundamentals. After all if something fails, there is a central planner to fix it. Never forget - the taxpayer credit card has no limits. Net result - green across the board.
More on sentiment from BofA
Yesterday's risk on trade continues today after Bernanke's dovish speech yesterday made investors re-price the possibility of QE3 later this year. That helped send the MSCI Asia Pacific index up 1.9% overnight. Looking at the individual markets in Asia the only one that we covered that finished lower was the Shanghai Composite down 0.2%. On the flip side, the best performer was the Japanese Nikkei up 2.4% followed by the Hang Seng which closed up 1.8%. The Indian Sensex managed to finish 1.4% higher while the Korean Kospi gained 1.0%.
In Europe, European equities are trading 0.7% higher in the aggregate. Blue chips are outperforming the broader European equity index up 0.9%. Shares listed in Germany are up 1.0% and French listed firms are gaining 0.9%. Shares listed in London are marginally underperforming the European aggregate up 0.6%. RBS gained 4.4% after reports emerged that the UK government held talks to sell as much as a third of its stake in the lender to Abu Dhabi. At home, futures are pointing to an extension of yesterday's solid 1.4% gain in the S&P 500. S&P 500 futures are pointing to a 0.3% increase from yesterday's close.
The risk on trade is causing a sell off in Treasuries. Treasuries are 1bp higher across the curve with the 10-year yield currently yielding 2.26%. Despite the risk on trade the safest European debt is actually rallying. The yield on the UK gilt is 3bp lower to 2.30% while the German bund is down 1bp to 1.94%. After selling off both the Italian and Spanish 10-year notes are yielding above 5%.
The dollar is weakening in the currency markets. The DXY index is down 0.1%. At the margin, the weaker dollar is helping boost commodity prices. WTI crude oil is up 6 cents to $107.08 a barrel while gold is trading at $1,691.28 after rising $1.20 an ounce.
Overseas data wrap-up
In Germany, Gfk consumer confidence was basically flat at 5.9 in their current survey down from 6.0 in the prior month - its highest level since the recession began. Part of the reason why we expect the Germany economy to grow 0.6% yoy this year is that consumer spending is expected to hold up well relatively well expanding 0.4% yoy this year. German consumers are benefiting from a tight labor market that has held down the unemployment rate and boosted personal income. The healthy labor market is reflected in today's consumer confidence survey.
In France, consumer confidence jumped to 87 in March - the highest level since July 2011 - up from 82 in February. That sharp rise in confidence came as a surprise to the market which was looking for consumer confidence to remain flat at 82 in today's report. Today's figure represents the highest level in eight months. Looking ahead, we would expect consumer confidence to fall in France due to our expectations that the labor market will deteriorate over the course of the year. We expect the unemployment rate to average 10.3% this year up from 9.7% as economic growth in France remains flat this year after a 1.7% increase in 2011. It would not be too surprising if next month's consumer confidence level retreated back towards 82 in our view.
We will be sorting through two economic indicators today. First up at 9:00 am is the January Case-Shiller home price index report. The S&P Case Shiller home price report is likely to show that prices fell at a decelerating pace in January. We look for a 0.3% MoM drop in the seasonally adjusted 20-city composite, following the 0.5% decline in December. This will leave prices down 4.1% on the year. We believe home prices should trough on a yoy rate in Q1. At 10:00 am, the Conference Board releases its March consumer confidence report. The index is expected to decline to 69.5 in March from 70.8 in February.
On the Fed front, we'll have a bevy of speakers including Fed Chairman Ben Bernanke at 12:45 pm giving his second of four economic lectures at George Washington University. Before we hear from Bernanke, NY Fed President William Dudley speaks before a congressional committee other Fed speakers today include Richard Fisher, James Bullard and Eric Rosengren.