What’s the Story?

by CC March 14, 2012 8:47 am • Commentary


Global stocks are flirting with fresh cyclical highs as hopes for the US economy and improving sentiment toward the American banking sector support risk appetite.

The FTSE All-World index is up 0.2 per cent as a 0.5 per cent advance for the Asia-Pacific region is followed by a 0.6 per cent gain for the FTSE Eurofirst 300. S&P 500 futures point to Wall Street opening marginally stronger and holding its position at a post-financial crisis peak.

The All-World’s advance leaves it at the best levels since the start of August, having bounced 19 per cent off its October lows and surging almost 12 per cent in 2012.

However, while equities are in demand, investors are more circumspect about other growth-focused assets. Copper, which tends to have a fairly tight correlation to any bullish mood, is down 0.9 per cent to $3.86 a pound, possibly the result of a slide in Chinese stocks.

In addition, forex is continuing to dislocate from its once slavish adherence to the risk-on/risk-off creed. The dollar index is up 0.2 per cent and the euro is down 0.1 per cent to $1.3065, and this is pressuring gold, off 1.1 per cent to $1,657 an ounce, a seven-week low.

Japan’s Nikkei 225 closed above the 10,000 mark for the first time in nearly eight months. Tokyo’s recent surge encapsulates the factors that have been driving risk assets worldwide: a reduction in eurozone tensions; central bank support; and better economic news, particularly out of the US, where the latest data showed retail sales in February rose at their fastest pace in five months.


JPMorgan Chase & Co. (JPM), the biggest U.S. bank, surprised investors and the Federal Reserve when the firm announced two days early that it had received regulatory approval for a 20 percent dividend increase.

JPMorgan surged 7 percent on yesterday’s news, which helped drive up the shares of competitors and major stock indexes. The central bank, which tested 19 of the largest U.S. financial firms to gauge their ability to withstand another severe economic downturn, decided to release the results at 4:30 p.m. in Washington, also two days ahead of schedule.

The bank’s disclosure prompted other lenders, including Wells Fargo & Co. (WFC), U.S. Bancorp and PNC Financial Services Group Inc. (PNC), to accelerate the disclosure of their dividend plans. It also irritated some staff at the Fed, which had planned to release the test results ahead of the industry, said one person familiar with the central bank’s operations who declined to be identified because the discussions were private.


Shares of U.S. banks were actively traded with mixed fortunes in preopen trading on Wednesday morning following results of the latest stress test results released late Tuesday by the government. Bank of America Corp. BAC +3.06% was the most actively traded stock and it rose 1.4%. Regions Financial Corp RF +4.67% added 4.2%, Citigroup Inc. C -3.92% fell 4.1%. Morgan Stanley MS +1.69% and Goldman Sachs Group Inc. GS +0.01% went opposite directions, with the former adding about 1% while the latter slipped a fraction. The test, designed to assess whether reserves were necessary to withstand another crisis like the credit crunch of 2008, showed Ally Financial Group Inc., MetLife Inc. MET -3.88% Citi and SunTrust Banks Inc. STI -4.38% each had less than a 5% of capital set aside under a measure called Tier 1 capital ratio, according to a Fed statement Tuesday. MetLife shares fell 3.4% in preopen trade.


China’s economy is already in a so- called “hard landing,” according to Adrian Mowat, JPMorgan Chase & Co.’s chief Asian and emerging-market strategist.

“If you look at the Chinese data, you should stop debating about a hard landing,” Mowat, who is based in Hong Kong, said at a conference in Singapore today. “China is in a hard landing. Car sales are down, cement production is down, steel production is down, construction stocks are down. It’s not a debate anymore, it’s a fact.”

The Shanghai Composite Index fell 2.6 percent today, the most since Nov. 30, after Premier Wen Jiabao said home prices are still far from reasonable levels. His comments fueled concerns the government will maintain restrictions on the property market for an extended period even as the curbs threaten to slow economic growth.

Wen announced at the beginning of a national lawmakers’ congress on March 5 an economic growth target of 7.5 percent for this year, down from 8 percent over the past seven years. Data last week showed China’s factory output in the first two months of the year rose the least since 2009, while retail sales increased less than economists predicted and inflation eased to the slowest pace in 20 months.