Thursday Morning Cheat Sheet: 3 Stories Moving Markets

The markets closed up in Asia on Thursday. Fueled by optimism for a capex recovery, Japan’s Nikkei climbed 1.96 percent to 13,549.20, breaking 13,500 for the first time in five years. The Hang Seng increased 0.30 percent while the S&P/ASX 200 increased 0.79 percent, despite a disappointing labor market report.

Markets in Europe were posting modest gains by mid-day trading. Germany’s DAX was up 0.52 percent, London’s FTSE 100 was up 0.32 percent, and the STOXX 50 index was up 0.21 percent.

U.S. futures at 8:35 a.m.: DJIA: +0.05%, S&P 500: +0.02%, NASDAQ: -0.23%.

Here are three stories to keep an eye on:

1) Is an End to Quantitative Easing In Sight? “In my view,” said Charles Plosser, president and CEO of the Federal Reserve Bank of Philadelphia in a Speech he delivered in Hong Kong on Thursday, “a case can be made that we have seen sufficient improvement to begin tapering our asset purchase program with the objective of bringing it to an end before year-end.”

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Plosser’s comments are in line with some of the thinking revealed in the minutes from the most-recent Federal Open Market Committee meeting. According to the minutes, “a few members felt that the risks and costs of purchases, along with the improved outlook since last fall, would likely make a reduction in the pace of purchases appropriate around midyear, with purchases ending later this year.”

With risks and associated costs on one side of the coin, Plosser suggests that labor market conditions are improving at an acceptable rate. He argues that short-term weakness — the last employment situation report was less than thrilling — shouldn’t distract policymakers from what he sees as the beginnings of long-term stability…

2) Unemployment In Australia Unexpected Increases: The Australian Bureau of Statistics reported on Thursday that the nation’s unemployment rate edged up 0.2 percentage points in march to a seasonally-adjusted 5.6 percent. This compares against expectations for the headline unemployment rate to remain unchanged at 5.4 percent. The ABS also reported a 0.2 percentage point decrease in the seasonally-adjusted labor-force participation rate to 65.1 percent for the month. While Australia’s unemployment rate remains relatively low, it has increased nearly half a percentage point since this time last year.

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Australian 10-year government bonds edged up 0.04 points to 3.31 percent following the release. The Australian dollar fell 0.29 percent to trade at 0.9457 to the U.S. dollar. The soft data has some economists calling for a further reduction in borrowing costs by the Reserve Bank of Australia. The Australian dollar has remained above parity with the U.S. dollar pretty much since it was floated 20 years ago, which has negatively impacted the country’s industry.

3) Japan Could See Capex Recovery in Coming Months: Machine orders (excluding electric utilities and ships) increased 7.5 percent in Japan in February, the fastest pace since the middle of 2011. Core machinery orders are a leading indicator of production and a gauge of the strength of capital spending. The relatively strong results — combined with the Bank of Japan’s revitalized monetary-easing initiative and improving business sentiment — suggest that capital expenditures could begin to increase by the end of the quarter.

That said, February’s month-to-month increase was 0.6 percentage points shy of expectations. Year on year, machine orders were down 8.4 percent versus a consensus estimate for a decline of 7.5 percent. Activity has struggled to recover since sliding in 2011. The total value of machinery orders, including electric utilities and ships, increased 4.6 percent month over month.

Separately, Japan’s Corporate Goods Price Index increased 0.1 percent month over month, but declined 0.5 per cent year over year. This year-on-year weakness was highlighted by a 7.5 percent decline in iron and steel prices. There were price increases in nonferrous metals (+4.0 percent) and petroleum, coal products (+1.6 percent). Electric power, gas, and water prices increased 4.2 percent year over year. Japan’s Corporate Goods Price Index is a measure of the average price level for a fixed basket of capital goods paid by producers, similar to the Producer Price Index.

Japan Machine Orders

Source: Cabinet Office, Government of Japan

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