Europe Factory Data, Cpi Boost Stocks
US stocks are hovering around unchanged after the consumer price index climbed by a seasonally adjusted 0.2% in February, according to the Labor Department.
By Vikram Rangala
Tuesday, March 24, 2015 - 00:00
The increase is the first in four months and could mark an end to the oil-driven deflation of 2014. Gasoline prices have rebounded in early 2015, with the cost of oil stabilizing at around $50 a barrel after selling for more than $100 last summer. Higher costs for food, housing and new cars were also drivers of the increase.
Stocks finished slightly lower on Monday, erasing modest gains in the last 15 minutes of trade. Overall trading volume was thin, which allow traders to push prices higher early and which left little counterbalance when a large MOC sell order showed up in the futures and was echoed, as is typical, by reduced buying on the stock exchange. This late-day switch from buying to hedging is a common pattern.
The news item that may have driven an early rally in stock futures Tuesday morning was positive economic data from Europe, showing improvement in the German economy and stabilization in France. The Purchasing Managers Index for both the manufacturing and services sector across the region came in at the highest reading since May 2011, London-based Markit Economics said Tuesday.
Europe has been watching for signs that it's new stimulus program is helping prevent a deflationary spiral of falling prices and delayed household spending, ECB President Mario Draghi was optimistic, saying that a sustained recovery is taking hold. The composite gauges for Germany and France were both above the 50-point level that divides expansion from contraction, putting the overall number for the EU at a four-year high. European markets are up strongly while the euro currency is down slightly after surging against the dollar.
The good data from Europe ran counter to Chinese factory activity, which showed a drop to an 11-month low, according to HSBC. The data was weaker than expected, and Asian stocks dropped before recovering slightly at the close. The Nikkei and Hang Sen closed lower, while the Shanghai Composite closed up 0.10%.
U.K. inflation dropped to zero for the first time on record, the inflation rate remains on course to drop into negative territory later this year. U.S inflation figures are due out at 0830 ET. Bank of England Governor Mark Carney forecasts that the inflation rate will drop below zero in the coming months, though policy makers have said they’ll look through the slump as it’s driven by temporary factors, particularly cheaper oil. Weak price growth means there’s little pressure on the BOE to raise its key interest rate from a record-low 0.5 percent.
U.K. Prime Minister David Cameron has announced he will not run for a third term in 2020, even as he finishes campaigning for a second term. So UK voters can plan ahead now.
Greek Prime Minister Alexis Tsipras continues his official visit to Germany with a visit to the Holocaust Memorial. German Chancellor Angela Merkel struck a cooperative tone while also restating her position that Greece must meet the conditions set by its creditors. Bloomberg reports:
Merkel gave Tsipras a red-carpet reception at the Chancellery in Berlin on Monday without giving any signal that the emergency aid the Greek government is urgently seeking would be unlocked. Instead, she talked at their joint briefing of how she wanted to build trust with her Greek counterpart.
“We want Greece to be economically strong, we want Greece to have growth,” Merkel said. “And I think we share the view that this requires structural reforms, solid finances and a functioning administration.”
After winning election in an anti-austerity, almost anti-EU campaign, Mr. Tsipras now finds himself having to distance himself from those in his party who maintain their hard-line opposition to European demands. As often happens after an election, reality has set in and Mr. Tsipras now finds that some former allies are more interested in pandering to their domestic audience than in working out a deal with Greece's neighbors on the continent. As such, he now has to say things that avoid displeasing either the radicals in Syriza or the leaders of EU countries.
“The Greek bailout program was an unprecedented adjustment effort but in our view it wasn’t a success story,” he said. “We’re trying to find common ground to reach an agreement soon on the reforms that the Greek economy needs and for the disbursement of the funds that it also needs.”
Whether he manages to convince European leaders he can make good on agreements, and to convince his own party that he hasn't sold out, remains to be seen. But he faced some skepticism yesterday from George Soros, who warned that Greece could go "down the drain." The billionaire investor, whose fortune comes in part from predicting bad news for the Thai baht and the British pound, told Bloomberg the chances of Greece leaving the eurozone is 50-50.
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