Key news

  • Decent US job report pushes equity markets higher.

  • Next test for markets is this week’s US retail sales.

  • Chinese data disappoint, inflation higher.

  • Weaker JPY lifts Japanese stocks despite weak machine orders.

  • Very thin calendar today. Norway releases inflation data.

Markets Overnight

US equity markets climbed higher again Friday supported by the stronger-thanexpected employment report, see  Flash Comment US: Another decent labour marketreport, 8 March. The Dow Jones index rose 0.5%. Despite disappointing Chinese data over the weekend the S&P500 future is broadly unchanged and most Asian indices are slightly higher.

The next test for the markets will be Wednesday’s report on US retail sales, which will give an indication of exactly how soft the expected ‘soft patch’ in consumer spending is going to be following the tax hikes on 1 January and the rise in gasoline prices, see Weekly Focus, 8 March, for more on this week’s data.

Chinese inflation climbed to 3.2% in February (consensus 3.0%) up from 2.0% in January. There are some distortions due to the Chinese New Year, which pushed up a lot of prices temporarily and we expect inflation to fall back again in March. The rate is still below the Chinese target of 3.5% inflation for this year.

Activity data out of China also disappointed. Industrial production growth fell to 9.9% y/y in January/February (consensus 10.6%) and retail sales growth for the first two months of the year dropped to 12.3% from 15.2% in December. Fixed asset investment came out stronger than expected though, indicating that China is still struggling to rebalance its economy from investment- to consumption-driven growth. See FlashComment China: Recovery has not gained momentum in early 2013, 10 March.

In Japan the stock market has risen further despite very weak machinery orders, which fell 9.7% y/y in January (consensus -1.7%). The continued weakening of JPY supports the equity market. USD/JPY traded above 96 on Friday and has stayed around this level this morning.

US 10-year bond yields rose to the highest level in almost a year on Friday following the stronger job report. A decline in the unemployment rate - and overall decent forwardlooking labour market indicators - raised market expectations of Fed scaling back asset purchases later this year. This also contributed to a strengthening of the dollar as EUR/USD dropped back below 1.30.