Stocks at post crisis high on growth hopes as risk returns to markets

Tom Tong16/Mar/2012Currency Updates

Oil prices fell sharply following a report that the US and UK had agreed to release strategic oil stocks and that a formal US request to the UK to join forces in such a release was expected shortly. Brent crude initially tumbled $4 a barrel but rapidly pared that drop amid doubts about the accuracy of the report. Gold rebounded as the dollar weakened, rising 1 per cent to $1,661 an ounce

GBP

Car manufacturing production grew in the UK by 23.5 per cent last month as the dramatic revival of the automotive sector accelerated. Production rose to 138,296 cars, sharply ahead of the same month last year. The numbers were also boosted by the leap year giving an extra day’s production in 2012. Whilst exports to the EU fell by 9.7 per cent in February, they were offset by exports to Asia. 81.9 per cent of cars made in Britain were exported. Moreover, Sterling eased against the U.S. dollar and pulled back from a one-month high against the euro on Thursday, with sentiment broadly cautious after ratings agency Fitch joined Moody’s to warn about a possible downgrade to Britain’s top credit grade.

USD

US stocks climbed to post-financial crisis highs as the latest data releases offered further evidence that the economic recovery remained on track. The manufacturing and labour market figures helped push US equities higher with the S&P 500 up 0.5 per cent by closing time in New York. However, there was an easing of the recent pressure on Treasury bond prices that has been widely attributed to signs of recovering and fading talk of further stimulus measures from the Federal Reserve. February producer price price data continued the trend of moderating headline inflation. Indeed, the available March data suggested an upside risk for the monthly non-farm payrolls report and a rebound for the Institute for Supply Management’s manufacturing report. Moreover, in spite of the strength of US equities and the latest positive economic figures, the yield on the benchmark 10-year government bond held steady at 2.27 per cent – although it did touch a fresh five-month high of 2.35 per cent in early trading. The yield has jumped 24 bp over the past two days.

EUR

Wall Streets better tone helped the FTSE Eurofirst 300 index stage a late rally and close 0.4 per cent higher. The IMF yesterday approved its part of a second international bailout for Greece. However, this came with a stern warning that there must be no more short comings in its attempts to return to debt sustainability. The funds 24-member board agreed a €28bn loan as part of a second international bailout of €174bn. In other news, bond markets are rediscovering their enthusiasm for Italy even as evidence emerges daily of the worsening plight of its real economy. As yields on 10-year bonds fell below 5 per cent this month, Italy reported on the same day that unemployment levels had jumped to the highest in more than a decade. Officially, the country is back in recession with industry and consumer spending in decline. Industrial output in January was 5 per cent down on a year earlier. A study by Intesa Sanpaolo, a bank, indicated that consumption of food, drink and tobacco fell in 2011 to levels last seen 30 years ago.

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Written by Tom Tong

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