A bevy of economic data misses overnight, including German and UK retail sales, Japan industrial production, UK consumer confidence, and a European economy which is overheating more than expected (2.6% vs 2.5% exp, although with $10/gas this is hardly surprising), and futures are naturally green. The reason: the broken record that is the European FinMins who are now redirecting attention from the slowly fading LTRO impact to the good old standby EFSFESM, which according to a statement by de Jager has now been agreed on at €800 billion, lower than last week's preliminary expectation for €940 billion in joint firepower. That this is nothing but a headline grabber is as we have noted before, as there is much doublecounting, capital allocation to and by the PIIGS as well as funding already assigned. It will likely take stocks some time before the realization dawns that this is not new capital and liquidity entering the markets, unlike QE on either side of the Atlantic, while the amount is largely inadequate to fill the multi-trillion liquidity shortfall, let alone "solvency" of European sovereigns and banks. So for now enjoy the greenness all around.
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Market action
Asian equity markets finished mixed overnight. Starting with the indices that finished higher, the Indian Sensex was lifted 1.9% and the Shanghai Composite gained 0.5%. On the flip side, the Japanese Nikkei fell 0.3%, matching the drop in the Hang Seng. The Korean Kospi finished flat.
In Europe, equities are rallying sharply, up 0.9% in the aggregate. The risk-on trade was spurred by preliminary reports from today's EcoFin meeting in Europe that policy makers would run the full EFSF (€440bn) and ESM (€500bn) facilities in tandem until July 2013. We caution investors that these reports are only preliminary and a more formal announcement is due later today. At home, futures are following European markets higher. The S&P 500 is set to open 0.5% higher.
In bondland, Treasuries are selling off across the curve. The five-, ten- and thirty-year Treasuries are all 1bp higher. The 10-year is currently yielding 2.17%.
In Europe, the UK gilt and German bund are also selling off. The gilt is 1bp higher, at 2.20%, and the German bund is 2bp higher, at 1.82%.
The dollar is substantially weaker against a basket of other major currencies. The DXY index is down 0.5%. Commodity prices are higher. WTI crude oil is up 70 cents, to $103.48, and gold is trading $2.65 an ounce higher, at $1,664.23.
Overseas data wrap-up
Unexpectedly, Japan's industrial production fell by 1.2% mom in February, following January's 1.9% mom increase. Consensus was actually looking for a 1.3% mom increase in production.
Our European team just published a report called Euro Periphery Growth Call. They argue that, beyond the current first quarter rally, growth risks could trigger further market concerns about the periphery's debt dynamics. The current policy approach deals with fiscal adjustment and economic reform, but fails to address immediate growth prospects. In addition, the report looks at the capacity of the periphery economies to grow out of their debt. They find that it will be a long journey and that the ECB should play a bigger role in supporting short-term growth.
According to the Euro area flash estimate, Euro area CPI inflation slowed to 2.6% in March from 2.7% in February - slightly above consensus of a decline to 2.5%. Higher energy price effects partly offset weaker underlying inflationary pressures from the soft economy.
German retail sales unexpectedly contracted 1.1% mom in February, following on from a 1.2% mom drop in January (revised up from -1.6%). Consensus was looking for a 1.1% mom increase, likely assuming that sales would snap back after the January slump. So far this quarter, German retail sales are down a cumulative 2.3%, although we are wary of reading too much into short-term retail sales data, given that it is a very volatile component of overall consumer spending.
UK consumer confidence edged down from -29 in February to -31 in March. In a broader perspective, though, it has been very flat, at around the -30 mark, since early 2011 -- way below its long-run average of -6. The weakness of consumer confidence highlights the significant headwinds facing the UK consumer at present: muted nominal wage growth, squeezed real incomes, elevated unemployment and fiscal tightening, for example.
Some preliminary press reports from the Ecofin (Euro area finance and economic minister) meeting suggest that the full EFSF (€440bn) and ESM (€500bn) facilities might run in tandem until July 2013. These reports are only preliminary, so we await a more formal announcement later today.
Today's events
Busy Friday for the US economics team. First up, at 8:30 am, is the personal income and outlays report for February. Our expectations are for another solid personal income and spending report. We look for personal income to increase 0.4% and consumption to jump 0.8%. We look for the PCE price index to be up 0.4% mom. As such, real consumer spending should increase a more modest 0.4%. Our forecast for spending to outpace income means the saving rate will likely edge lower.
Next up, at 9:45 am, the Chicago Purchasing Managers' Index (PMI) is expected to moderate to 62.5 in March after rising to 64.0 in February. Ten minutes later, the University of Michigan's Index of Consumer Sentiment is expected to decline to 74.0 from the initial estimate of 74.3 in March.