THE VAST U.S. services sector grew at its fastest pace in a year in February, contrasting with signs of recession in Europe, while China cut its annual growth forecast to an eight-year low. Even so, the U.S. improvement helped global private sector activity grow last month at its fastest pace in a year, according to JP Morgan’s Global Total Output index published on Monday.
But that growth has come at a cost, with prices rising at their fastest pace since May 2011, pushed up by escalating oil prices and an associated increase in transportation costs. While recent indicators have been encouraging, “people are still cautious,” said Tom Porcelli, chief U.S. economist at RBC Capital Markets. “We live in an environment where countries’ growth expectations are very much tied together.”
THE BANK OF ENGLAND’S policy meeting this week may be undramatic on the surface, but there are signs of deepening rifts on the Bank’s Monetary Policy Committee over the need for more stimulus for the economy. All the economists polled by Reuters last week expected the Bank to keep rates on hold at a record low 0.5 % and to stick with February’s decision to buy an extra 50 billion pounds of government bonds over the next three months. Despite the fact that two MPC members wanted to raise quantitative easing purchases by 75 billion pounds last month, most economists now no longer expect any more QE this year.
MARKETS:
THE FTSE 100 fell yesterday, as weakness in miners and engineers outstripped strength in defensive stocks after China cut its growth forecasts, while mixed economic data in Europe and the United States dimmed the outlook for global growth. London’s blue chip index shed 36.31 points or 0.6% to 5,874.82, although it held within its recent tight range between 5,830 and 5960, in place since early February. Volumes were weak and implied volatility rose 3.3%, suggesting concern had returned among investors, although the level remained at less than half the multi-year peaks set in September 2011.
ASIAN STOCKS were under pressure as concerns over slowing growth in China outweighed upbeat US economic data, while
the Australian market fell to a two-week low led by resources stocks. The MSCI Asia Pacific index was little changed with
Japan’s Nikkei Stock Average off 0.4%, Australia’s S&P/ASX 200 down 0.8%, and South Korea’s Kospi Composite 0.4% lower.
Hong Kong’s Hang Seng index slid 1% and China’s Shanghai Composite index fell 0.6%.
CURRENCIES:
THE YEN RALLIED versus all of its most-traded counterparts after China said it will lower its target for economic growth,
boosting demand for the relative safety of Japan’s currency. The euro gained against most major currencies as Greece said it
expected private creditors to accept its debt-swap terms because it constitutes “the best offer.” The dollar pared gains against
its higher-yielding counterparts after nonmanufacturing industries, 90% of the U.S. economy, rose last month more than
forecast.
ENERGY:
OIL EDGED HIGHER as U.S. President Barack Obama and Israeli Prime Minister Benjamin Netanyahu met to discuss how to
confront Iran over its nuclear program and China’s cut to its economic growth target. Futures posted the smallest move in 10
months after Obama said in a meeting with Netanyahu today at the White House that “all options” are available to prevent a
nuclear-armed Iran. Prices fell as much as 1.1% earlier as China’s Premier Wen Jiabao said his country will aim for expansion
of 7.5% this year, the lowest goal since 2004.
COMMODITIES:
SPECULATORS INCREASED BETS on higher agricultural prices to a five-month high on mounting concern that a South
American drought will curb supplies of soybeans, corn and sugar at a time of record global demand. Corn bets increased the
most in eight weeks, and sugar holdings climbed to the highest since August. Wagers on higher soybean prices rose to a five-month high.
