Global Markets Weekly - 19 April 2010

• Stocks reached their highest levels since the days following Lehman's collapse, bolstered by strong data and earnings.
  The S&P 500 broke back through the 1200 mark last week for the first time since the days immediately following the collapse of Lehman Brothers in September 2008, driven by encouraging economic data and a strong start to the US earnings season from banks and technology companies. But the strongest data was from Asia, with the revelation that the Chinese economy grew 11.9% year-on-year (y/y) in the first quarter (Q1) and Singapore’s economy grew a whopping 13.1% y/y (32.1% quarter-on-quarter annualised) on the back of rising exports. Since early April, emerging-Asian equity markets have been in positive year - to date territory. Stock markets fell on Friday on news that US regulators had accused Goldman Sachs of fraud in its mortgage-securities business.
• China's Q1 GDP was stronger than expected, helped by consumption and investment in housing.
  China’s Q1 GDP growth was higher than expected. Base effects played a part, as Q1 2009 was exceptionally weak. But we estimate that quarterly growth accelerated to a 14.5% annualised pace q/q, from 10.5% in Q4. China does not publish a detailed breakdown, but monthly data suggest that a strengthening in residential investment was the largest driver of growth. Private consumption, mainly auto sales, was also strong in Q1. The acceleration in growth argues for further policy tightening, although outside of specific measures to reduce property lending such as an increase in minimum deposits announced this week, the means of tightening is not yet clear. CPI inflation is currently lower relative to the last two episodes of interest-rate tightening in 2004 and 2007. Delaying rate hikes could mean that a resumption of yuan appreciation is being considered, as it is unlikely that the government would do both simultaneously.
• Signapore's eye-popping GDP growth prompted an aggressive appreciation of its currency.
  Singapore’s economic performance in the first quarter prompted the Monetary Authority of Singapore (MAS) to aggressively tighten its exchange-rate policy by increasing the Singapore dollar trading band, re-centering it at the current level and also allowing a "modest and gradual appreciation." In Singapore, monetary policy takes the form of targeting the Singapore dollar exchange rate against a basket of its major trading partners, rather than setting interest rates directly. The move led to strength in a number of emerging Asian currencies. The Korean won, which rose to its highest level against the US dollar since September 2008, also benefited from a credit-rating upgrade by Moody’s this week, to A1 from A2, citing the country’s resilience to the global financial crisis.
• Maybe Goldilocks isn't dead after all. Strong growth and low inflation make a reappearence in the US.
  US economic data was generally positive, though confidence amongst small businesses remains weak. Retail sales came in stronger than expected, while CPI inflation was lower than expected. Core inflation dropped to only 1.1%, reducing any pressure on the Federal Reserve to raise rates quickly as the recovery gathers steam. Weekly jobless claims were higher than expected at 484,000, well above the level that would be consistent with a stabilising labour market, but this was most likely due to the difficulty in adjusting statistics for the timing of Easter.
• Greece finds the mere prospect of a bailout is not enough.
  Finally, Greece appears to be edging closer to a formal bailout, as the spread of its bond yields over German bunds continues to widen. On Thursday, finance minister George Papaconstantinou sent a letter to the European Commission formally asking to discuss "a multiyear economic policy programme with the Commission, the European Central Bank and the International Monetary Fund."

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