Overview: Markets mostly up this morning as the G7 intervened in foreign exchange markets, providing stability to the ailing yen.
U.S.: Futures up this morning. Apparently quantitative easing, world strife, and currency intervention are interpreted as bullish. CPI reported yesterday showed an increase of 0.5% MoM v estimates of 0.4% MoM, driven by higher energy prices. Core CPI also picked up 0.2% MoM, due to higher car prices, showing an increasing trend in core prices. The Philadelphia Fed’s industrial report yesterday showed an increase to 43.4 v 28.8E, showing further expansion.
Europe: ECB executive board members told reporters that the Japanese earthquake will not affect intentions to raise interest rates. The European Banking Authority released details on its 2011 stress tests. The assumed GDP contraction shock will be 4% v 3% in last year’s tests. The EBS will only look at sovereign risk in banks’ trading books, rather than their overall portfolios, disappointing markets focused on an unfolding sovereign debt crisis. The U.N. Security Council at last came to an agreement yesterday for a no-fly zone over Libya. German parliament voted yesterday to prevent the ESM from buying government bonds, clashing with Merkel’s recent negotiating positions. Germany’s regional election in Saxony-Anhalt on Sunday will likely reveal the growing political disunity in the nation. German producer prices rose 0.7% MoM v 0.7%E MoM and 6.4% YoY v 6.3%E YoY, showing a major increase in inflation for the area. Being the first few links in the supply chain, producers take the price hit first. UK consumer confidence fell to 38 v 47E in February, its lowest level since the index’s creation in 2004.
Asia: The G7 together stepped into the foreign exchange market to help support the ailing yen after a request to the G7 from the Japanese. The buying effort is intended to put a limit on Japan’s rapidly rising exchange rate. The move has already made the yen fall and calmed markets worldwide. Workers in Japan are continuing through the night to restore power to the troubled nuclear power plant in efforts to stop a meltdown. China increased reserve requirements for the third time this year, as inflation has become one of the government’s leading economic concerns.
From Brian Yelvington at Knight Capital