The dollar, the equity market and most commodities notched up gains last week as a lack of economic data failed to cause any negative volatility. The only surprise of the week came when the Indian Central Bank raise interest rates, which was really more a surprise of timing than action. The S&P 500 Index rallied 9.5 points or .85% and the Dow Jones was the last of the major indexes (in the US) to make a new 52 week high. The dollar index retraced last week’s loses and gained .5%
On Monday in the US, Industrial Production increased by 0.1% in February to an index value of 101.0 (2002=100), better than the expected decrease of 0.1% following a 0.9% increase in January. Over the year, the industrial production index is up by 1.7%. Capacity Utilization was reported at 72.7%, an increase from the revised level of 72.5% for January, but 7.9 percentage points below its average for the period from 1972 through 2009. In February 2009, Capacity Utilization was measured at 70.6%. The biggest gain in the report showed output in the mining industry rose 2.0% after climbing 1.1% in January. Mining capacity use rose to 88.2% from 86.4%.
On Tuesday the Federal Reserve Bank left interest rates unchanged. The Fed’s statement following the March meeting was nearly identical to January’s remarks. The central bank continues to see economic improvement and expects to scale back emergency programs, but makes no signal that rates are going to rise in the near term. The Federal Reserve said it will end one of its main support programs for the U.S. economy, the purchases of $1.25 trillion of mortgage backed securities.
In economic news in the US, Housing starts decreased by 5.9% to a seasonally adjusted 575,000 annual rate compared to the prior month, according to the Commerce Department. While this was the biggest decline in four months, it followed an upward revision in the previous month’s data, when starts staged a 6.6% gain. January starts were originally reported up 2.8%. February’s homebuilding activity remained above the level of 573,000 registered in December. Economists surveyed forecast a 4.7% drop in February housing starts, to an annual rate of 563,000. Building permits, an indication of future construction, fell 1.6% to a 612,000 annual rate. Economists had expected permits to decline 3.1% to a rate of 603,000. January permits fell 4.7% to 622,000.
In Europe, Greece avoided a downgrade to its credit rating by Standard & Poor’s Ratings Services, which had warned last month that it was considering such a move, although the ratings firm slapped on a negative outlook. S&P credit analyst Marko Mrsnik said the Greek government’s plans to reduce its deficit was supportive of the nation’s current triple-B-plus long-term credit rating, which is three notches into investment-grade territory.
Over in Japan, the BoJ left its key target rate unchanged at 10 basis points, but appeared to bow to government pressure and increased the size of the three-month loan facility arranged last December to JPY20 trillion from JPY10 trillion. Tweaking this facility was widely tipped as a likely compromise formation between the BOJ who has argued that monetary policy was already extraordinarily easy and interest rates were extremely low, while the government wants more efforts to combat deflation. Nevertheless, the compromise was not satisfactory and two BOJ members (Noda and Suda) dissented.
On Thursday, U.S. wholesale prices in February posted their biggest drop in seven months as gasoline costs fell sharply, leaving scope for the Federal Reserve to keep short-term interest rates at a record low. The producer price index for finished goods dropped by a seasonally adjusted 0.6% m/m in February, according to the Labor Department, following an unrevised 1.4% increase in January. The core PPI, which excludes volatile energy and food prices and is more closely watched by the Fed, rose 0.1% last month after increasing by 0.3% in January.
The seasonally-adjusted consumer price index was unchanged last month, the Labor Department said Thursday, after increasing an unrevised 0.2% in January. The last time inflation looked so tame was in March 2009, when consumer prices fell by 0.1%. Core consumer prices, which strip out volatile energy and food items and are more closely watched by the Fed, were up by a monthly 0.1% in February. In January, core prices fell by 0.1%. Economists surveyed were expecting an increase of 0.1% in both the headline consumer price figure and the core consumer price index number. On an annual basis, which is not adjusted for seasonal factors, consumer prices rose by 2.1% in February. Core consumer prices rose by 1.3% from 12 months ago, the lowest increase since Feb. 2004.
The Philly Fed said its index of regional manufacturing activity rose to 18.9 in March from 17.6 in February, with a positive reading indicating growth in the sector. Economists had been expecting a more modest increase by the index to a reading of 18.0.
The Labor Department said in its weekly report Thursday that initial claims for jobless benefits fell by 5,000 to 457,000 in the week ended Mar. 13. The previous week’s level was left unrevised at 462,000. Total claims lasting more than one week, meanwhile, increased moderately. The decrease in initial claims was just below economists’ expectations. Economists surveyed expected initial claims to decrease by 7,000. The four-week moving average, which aims to smooth volatility in the data, also went down for the week ending Mar. 13. The Labor Department said the four-week moving average decreased by 4,250 to 471,250 from the previous week’s unrevised average of 475,500.
On Friday, India surprised the market by announcing a 25 basis point hike in key rates. The surprise was only in the timing. This brings the repo rate to 5% and the reverse repo rate to 3.5%. To the extent there was speculation of a rate hike, it was more about China than India. That said, India had raised reserve requirement earlier this quarter and many understood a rate hike was a question of time.
Forex
Canadian retail sales in January rose a robust 0.7%, which was slightly stronger than the 0.6% rise expected by analyst, according to Canstat. This small upward surprise occurred despite new car sales being much weaker than expected by dropping 2.3%. The offset was an unexpectedly large surge of 1.8% in ex-auto sales that was more than triple the 0.5% gain expected going into the report. The jump in ex-auto sales was attributable to sales at building and outdoor home supplies stores rising an impressive 7.4%. This strength was attributed to households making purchases before the expiration of the federal government’s Home Renovation Tax Credit. This factor may also have boosted sales at furniture, home furnishings and electronic stores, which rose 2.5% boosted by surge in sales of floor coverings. From a technical point of view the Canadian Dollar broke major support and seems to be heading lower.
The combination of mixed political signals in the Euro zone and technical resistance created the failure in the upward movement of the Euro. In general, a bottom will be tested multiple times prior before support is created. The Euro again felt pressure from the 50 day moving average which has held the Euro in a down trend for the past 4 months. Additionally, the RSI 50 level has created resistance where technical traders have become sellers.
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