Wednesday Morning Cheat Sheet: 3 Stories Moving Markets

Markets closed up in Asia on Wednesday. In Japan, the Nikkei climbed 2.32 to percent, just shy of five-year highs as a weak yen (trading at 99.5050 to the dollar) once again buoyed exporters. Hong Kong’s Hang Seng index added 1.73 percent, while Australia’s S&P/ASX 200 added 1.72 percent.

Markets in Europe also advanced on Wednesday, spurred by growing hope that the European Central Bank will cut the benchmark interest rate — a recent slew of economic indicators certainly suggests that the time may be right. In mid-day trading, Germany’s DAX was up 0.54 percent, London’s FTSE 100 was up 0.22 percent, and the STOXX 50 index was up 0.66 percent.

U.S. futures at 8:55 a.m.: DJIA: +0.08%, S&P 500: -0.07%, NASDAQ: -0.10%.

Here are three stories to keep an eye on:

1) German Business Climate Index Falls: It’s the latest installment of negative economic indicators out of Europe: the much-watched Ifo Business Climate Index for German industry and trade fell in April. The report indicates that although most companies assessed the current situation as “good,” companies are far more cautious now than last month. The manufacturing business climate index fell significantly.

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What is particularly worrisome is that German private-sector output, measured by Markit, also declined in April. The German Composite Output Index fell to 48.8, indicating contraction and a six-month low. Germany, as the region’s largest economy, has served as a backbone of the recovery effort, and weakness in its economy has a systemic impact on the entire region…

2) Is a Rate Cut Imminent? Combined with high unemployment, the PMI data and decline in business climate sentiment suggest that the European downturn may not have actually hit a bottom, as optimists suggest. Because of the disappointing economic data, equity investors may be hoping that the European Central Bank will cut its benchmark rate, which currently sits at 0.75 percent. This is slightly higher than the rates maintained by other major central banks.

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“Now we are free,” one senior ECB official said, according to Reuters. “For the next meeting in Bratislava, I would look at rates, certainly.” The ECB will meet there next Thursday.

“The German slowdown, the very low inflation rates we have in Germany, the latest decline in the oil price — all these factors are weighing on inflation and should make even the Bundesbank a little less opposed to a rate cut,” said Berenberg Bank economist Christian Schulz to Reuters.

3) Is the American Consumer Struggling to Spend? The Federal Reserve’s beige book report on current economic conditions, released at the end of last week, noted that retail sales may be poised to make a comeback. The analysis showed that consumer spending increased in most districts during the reported period of late February to early April, although businesses in some regions reported that higher gasoline prices, the expiration of the payroll tax cut, and harsh winter weather restrained sales. But still, the central bank stated that “looking ahead, retailers in several Districts expect modest sales growth in the near term.”

However, Tuesday’s snapshot of the retail sector did not provide much evidence of that prediction. Following several recent disappointing showings from both the International Council of Shopping Centers and Goldman Sachs Retail Chain Store Sales Index and Redbook’s weekly measure of sales at chain stores, discounters, and department stores, last week’s data seems to indicate that the decline continues… (Read more.)

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