Market Updates Mar10
Markets
The MSCI Asia Pacific Index has rallied in the past six weeks as concern over monetary tightening and Greece’s debt receded, and as companies reported better-than-expected earnings. The Index has gained about 9.5 percent from its lowest level in more than two months on Feb. 8, as better-than-estimated U.S. employment data and a pledge of support from French President Nicolas Sarkozy for debt-stricken Greece bolstered confidence in the global recovery.
The average price of stocks in the index has risen to about 19 times estimated earnings from 18 at February’s low. The world economy will expand 3.9 percent this year and 4.3 percent in 2011, following a contraction of 0.8 percent in 2009, according to IMF estimates released in January.
U.S. Federal Funds Rate
The MSCI Asia Pacific Index rose late last week after the Federal Reserve said it will leave its benchmark interest rate near zero to safeguard the economic recovery. It is clear now that the Fed is going to keep rates very accommodative to stimulate the growth recovery. The question is the consumer’s ability to step up to support the economy.
Bank of Japan expanded a bank-loan program
The Bank of Japan doubled a lending program on March 17, aimed at stoking credit growth after the government stepped up calls to arrest deflation that’s hampering the economic recovery. It also held the overnight lending rate at 0.1 percent.
India’s Policy Tightening
The Reserve Bank of India raised its benchmark interest rates on March 19. The surprise comes that it is a month earlier than the next scheduled review, reflecting the need to tame the fastest inflation in more than a year. India’s central bank said containing inflation has become “imperative.” Further rate hikes are likely over coming months as the bank moves further to contain inflation.
Policy makers in Australia and Malaysia have also increased rates since the end of February, while China has so far this year twice ordered lenders to set aside more funds as reserves.
Rich nations warned on debt
THE International Monetary Fund warned the world’s wealthiest nations on Sunday to watch their surging levels of government debt, saying it could drag down the growth needed to ensure continued economic recovery.
The IMF projects that gross general government debt in the G-7 advanced economies, except Germany and Canada, will rise from an average of about 75 per cent of GDP at the end of 2007 to about 110 per cent of GDP at end of 2014. This year, the average debt-to-GDP ratio in the wealthiest countries is projected to reach levels that prevailed in 1950 in the aftermath of World War II.
Advanced economies face “acute” challenges in reining in debt which, highlighting the medium-term limitation of the global economy.
Greece Jitters
The euro slipped to a one-week low versus the yen after Germany curbed speculation the European Union will agree financial aid for Greece at a meeting this week.
EU leaders must not create “illusions” for markets by building expectations for Greek aid, German Chancellor Angela Merkel said in an interview that aired yesterday. Her remarks came after Greek Prime Minister George Papandreou and European Commission President Jose Barroso said the EU should spell out its rescue plan at the March 25-26 summit in Brussels. Greece is seeking help before 20 billion euros ($27 billion) of its debt matures in the next two months.
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