“Chinese stocks rose, extending the biggest one-day gain in two months, as a private survey showed manufacturing is expanding at a faster pace in March.

FAW Car Co. (000800) gained 3.2 percent after rallying by the daily 10 percent limit yesterday. Zhejiang Dahua Technology Co. and GoerTek Inc. (002241) led an advance by technology companies. The preliminary reading of a Purchasing Managers’ Index rose to 51.7, HSBC Holdings Plc and Markit Economics said, quicker than both last month’s 50.4 final reading and the 50.8 median estimate of analysts in a Bloomberg News survey.

The Shanghai Composite Index (SHCOMP) added 0.3 percent to 2,324.24 at the close. The CSI 300 Index climbed 0.2 percent to 2,614.99. The Hang Seng China Enterprises Index (HSCEI)fell 0.4 percent in Hong Kong. The Bloomberg China-US 55 Index (CH55BN) rose 2.2 percent in New York yesterday.

“The data shows the economy is on a recovery path,” said Wu Kan, a Shanghai-based fund manager at Dazhong Insurance Co., which oversees $285 million. “But there’s still concern over the strength of the recovery.”

The Shanghai index has dropped 4.5 percent from its Feb. 6 peak on concern that an economic recovery will falter as officials take steps to cool the property market and counter risks for banks from an expansion in credit. The gauge jumped 2.7 percent yesterday as Market Studies LLC’s Tom DeMark said the equity index will resume a rally to gain as much as 28 percent by September.

Trading volumes

Thirty-day volatility in the benchmark stock index rose to the highest level since February 2012 yesterday, according to data compiled by Bloomberg. The gauge is valued at 9.5 times projected 12-month earnings, compared with the seven-year average of 15.8, according to data compiled by Bloomberg. Trading volumes were 0.5 percent higher than the 30-day average….”

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“Japan posted its longest run of trade deficits in three decades as exports fell in February, underscoring challenges for Bank of Japan (8301) Governor Haruhiko Kuroda in reviving the world’s third-biggest economy.

Shipments dropped 2.9 percent from a year earlier, the Finance Ministry said in Tokyo today. The median estimate of 22 economists surveyed by Bloomberg News was for a 1.7 percent decrease. Imports rose 11.9 percent, leaving a trade shortfall of 777.5 billion yen ($8.1 billion).

Kuroda is scheduled to give his first press conference from 6 p.m. in Tokyo today, with news from Bank of Japan briefings usually embargoed until after they finish. The new central bank chief has pledged more aggressive monetary easing that may further weaken a yen down about 10 percent against the dollar this year, a move that’s already swelling the nation’s import bill as nuclear-plant shutdowns force bigger imports of fossil fuels….”

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“U.K. inflation accelerated to the fastest pace in nine months in February and factory-gate prices increased twice as much as forecast as energy costs surged.

Consumer prices rose 2.8 percent from a year earlier, compared with 2.7 percent in January, the Office for National Statistics said in London today. That matched the median of 35 estimates in a Bloomberg News survey. Producer prices increased 0.8 percent from the previous month, the most since April 2011.

Higher energy bills and a weaker pound have fueled price pressures in recent months. That’s adding to the squeeze on consumers as they brace for another austerity budget by Chancellor of the Exchequer George Osborne tomorrow. With price gains above the Bank of England’s 2 percent target, Osborne may also flag changes to the central bank’s mandate to give policy makers more flexibility to stimulate growth.

“The economy is going nowhere fast and the BOE has said it will essentially look through above-target inflation,” said Rob Wood, an economist at Berenberg Bank in London. “Whether of its own volition, or because the chancellor tweaks its inflation remit in the budget, we continue to expect the BOE to add more monetary stimulus this year.”

The pound erased its decline against the dollar after the data were published. It was trading at $1.5125 as of 11:28 a.m. inLondon, up 0.1 percent from yesterday….”

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“WASHINGTON (Reuters) – Consumer prices recorded their largest increase in nearly four years in February as the cost of gasoline surged, but details of the report on Friday showed no sign of a pickup in inflation to trouble the Federal Reserve.

The Labor Department said its Consumer Price Index increased 0.7 percent last month, the largest gain since June 2009, after being flat in January. Gasoline accounted for about three quarters of the spike in consumer inflation.

Economists polled by Reuters had expected the CPI to advance 0.5 percent.

In the 12-months through February, consumer prices rose 2.0 percent, the largest gain since October. They had increased 1.6 percent in January.

Fed officials are likely to dismiss the gasoline-driven jump in price pressures as temporary when they meet next week to evaluate the economy.

Gasoline rose 9.1 percent, the largest gain since June 2009, after falling 3.0 percent in January. Gas prices at the pump, however, have declined in the past two weeks.

Excluding food and energy, consumer prices rose 0.2 percent slowing from January’s 0.3 percent advance.

The generally benign underlying price pressures should give the U.S. central bank scope to keep pumping money into the economy, despite signs of improvement in labor market conditions.

The Fed last year embarked on an open-ended bond buying program and said it would keep it up until it saw a substantial improvement in the outlook for the labor market. It hopes the purchases will drive down borrowing costs.

In the 12 months through February, so-called core CPI increased 2.0 percent, also the largest increase since October, after rising 1.9 percent in January….”

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Retail ex auto up 1%, ex gasoline up 0.4%

Import Prices: up 1.1%

Export Prices: up 0.8%

“Euro-area industrial output fell more than economists forecast in January, adding to signs that the region’s recession extended into the first quarter.

Factory production in the 17-nation euro zone dropped 0.4 percent from December, when it rose a revised 0.9 percent, the European Union’s statistics office in Luxembourg said today. The median forecast in a Bloomberg News survey of 32 economists was for a 0.1 percent decline. Production fell 1.3 percent in January from a year earlier.

The euro-region economy is struggling to regain momentum after five straight quarters of contraction, with unemployment at a record 11.9 percent. The economy will shrink again in the first three months of 2013 before returning to growth, according to a separate Bloomberg survey, while the European Central Bankhas forecast a 0.5 percent contraction this year.

“The euro zone’s economic recovery is likely to be excruciatingly slow,” Nick Kounis, head of macro research at ABN Amro Bank NV in Amsterdam, said before the data were released. “With growth so weak and inflation likely to continue to fall toward low levels, we think there is room for more stimulus and the ECB should be more proactive.”

Manufacturing Index

Euro-area manufacturing remained weak in February, according to Markit Economics Ltd. Itsmonthly factory index held at 47.9 last month, below the 50 mark that divides contraction from expansion. The gauge has been below that level for more than a year and a half.

“The underlying trend for the European economy is still one of contraction,” Kounis said. “Business surveys which are a little more forward looking are starting to edge toward levels consistent with stabilization, but they are still away from that.”

Industrial output in Germany, Europe’s largest economy, slipped 0.4 percent in January after a 0.8 percent gain in December, today’s report showed. France reported a decline of 1.2 percent, while Spanish output rose 0.6 percent. The statistics office didn’t report data for Italy….”

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“China should be on “high alert” over inflation after February’s figures exceeded forecasts, central bank Governor Zhou Xiaochuan said, signaling a heightened focus on controlling prices.

Monetary policy is “no longer relaxed” and is “relatively neutral” as demonstrated by a 13 percent target for money-supply growth that’s tighter than expansion in the last two years, Zhou, head of the People’s Bank of China, said at a press conference today during the annual gathering of China’s National People’s Congress.

Zhou’s comments add to signs that officials are tightening policies even as the recovery in the world’s second-biggest economy shows signs of weakness. While the central bank has leftinterest rates and lenders’ reserve requirements unchanged since July last year, the government this month intensified a campaign to control home prices.

“The central bank has always attached great importance to consumer prices,” Zhou said. “Therefore we will use monetary policy and other measures to hopefully stabilize prices and inflation expectations.”

China’s new leaders including Li Keqiang, set to become premier this week, inherit the task of sustaining a recovery from the slowest growth in 13 years while reining in asset prices and credit. February inflation, distorted by the weeklong Lunar New Year holiday, accelerated to a 10-month-high of 3.2 percent.

Tighter Policy…”

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“The pound dropped to the lowest against the dollar in more than 2 1/2 years and government bonds advanced as a report showed U.K. industrial production unexpectedly declined in January.

Sterling weakened for a second day versus the euro after data showed output fell 1.2 percent from December, according to the Office for National Statistics. The median forecast in a Bloomberg News survey of 29 economists was for a 0.1 percent increase. Manufacturing also unexpectedly contracted, slipping 1.5 percent in January. Gilts gained after the Royal Institution of Chartered Surveyors said house prices decreased for a second month in February.

“Momentum is clearly against the pound and, if anything, that serves as an excuse to carry on the market takes it,” said Derek Halpenny, European head of global-markets research at Bank of Tokyo-Mitsubishi UFJ in London. “The weak data backup renewed quantitative easing and it’s a clear recipe for further pound weakness.”

The pound fell 0.4 percent to $1.4861 at 11:01 a.m. London time after sliding to $1.4832, the lowest level since June 2010. Sterling weakened 0.1 percent to 87.53 pence per euro.

Bank of Tokyo-Mitsubishi forecasts the pound will slide toward $1.40 within 12 months. It could “easily” reach that level within in a couple of months, Halpenny said.

The benchmark 10-year gilt yield decreased six basis points, or 0.06 percentage point, to 1.96 percent. The 1.75 percent bond due in September 2022 rose 0.5, or 5 pounds per 1,000-pound face amount, to 98.215….”

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India’s industrial output rose more than economists estimated in January following policy changes by the government to bolster an economy expanding at the weakest pace in a decade.

Production at factories, utilities and mines climbed 2.4 percent from a year earlier after a revised 0.5 percent drop in December, the Central Statistical Office said in a statement in New Delhitoday. The median of 28 estimates in a Bloomberg News survey was for a gain of 1.3 percent.

The government in last month’s budget said it will trim the fiscal deficit to a six-year low, seeking to reduce inflation risks and boost the central bank’s scope to cut interest rates. Wholesale prices probably increased at the slowest pace in more than three years in February, the median estimate in a Bloomberg survey shows before a report due March 14.

“Amidst expectations of a stretched and gradual demand revival, a sharp upswing in output is unlikely,” Tirthankar Patnaik, a Mumbai-based strategist at Religare Capital Markets Ltd., said before the release. The central bank will probably lower borrowing costs at next week’s policy meeting, he said….”

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“BofA Merrill Lynch strategist David Woo is out with a report this week on the changing nature of the U.S. dollar’s relationship with oil prices and what it means for the future of the American economy.

The main conclusions of the piece are that a stronger dollar will help remove volatility from the business cycle in the U.S., make more people want to invest in U.S. assets, and further enhance U.S. economy’s competitiveness vis-a-vis China and Europe.

All of this is thanks to the American energy boom.

Woo says that the biggest surprise of 2013 so far has been the noticeable decoupling of a longstanding negative correlation between the U.S. dollar and world stock prices – “one of the most enduring features of financial markets over the past decade” – as illustrated in the chart below.

BofA Merrill Lynch Global Research

U.S. dollar versus MSCI world stocks (click to enlarge)

According to the report, a big component of this inverse correlation between the U.S. dollar and global growth over the last decade has been the rise in Chinese energy consumption….”

Full article and charts

“German exports rose more than economists forecast in January, adding to signs that Europe’s largest economy is gathering momentum after a contraction in the fourth quarter.

Exports, adjusted for working days and seasonal changes, advanced 1.4 percent from December, when they gained 0.2 percent, the Federal Statistics Office in Wiesbaden said today. Economists had forecast a 0.5 increase, according to the median of 13 estimates in aBloomberg News survey. Imports rose 3.3 percent from December.

While the German economy shrank 0.6 percent in the final three months of last year, the Bundesbank predicts it will rebound in the current quarter. Confidence among investors and businesses jumped in February and retail sales rose the most in more than six years in January. Still, factory orders unexpectedly fell and industrial production stagnated.

“Very hesitantly, hard data is reflecting the strong rebound in sentiment surveys,” said Christian Schulz, senior economist at Berenberg Bank in London. “The economy is rebounding from the sharp contraction, but the extent of the rebound remains subject to some uncertainty.”

The trade surplus rose to 13.7 billion euros ($17.8 billion) from 12.1 billion euros in December. The surplus in the current account, a measure of all trade including services, was 11.3 billion euros, down from 20.2 billion euros.

ECB Forecast

The European Central Bank last week cut its forecasts and now expects the euro-area economy, Germany’s biggest export market, to shrink 0.5 percent this year before growing by 1 percent in 2014. The German economy will expand 0.4 percent this year, according to the Bundesbank….”

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“French industrial production fell more than expected in January as Europe’s second-largest economy teetered on the brink of its third recession in four years.

Output from factories, mines and utilities fell 1.2 percent in the month from December, national statistics office Insee said today. Economists had expected a 0.2 percent drop, according the median 25 estimates in a Bloomberg survey.

The decline underlines difficulty President Francois Hollande faces in trying to revive an economy that fell back into recession early last year and shrank again in the fourth quarter.Factory output fell 1.4 percent in January and 4.6 percent in the three months through January, led by a slump in car production.

“France remains stuck in a recessionary mode,” said Philippe Gudin, an economist at Barclays in Paris. “The unemployment rate is flirting with historical highs and household income is hit by higher taxes. The stabilization we had expected from the beginning of 2013 does not seem to have taken place.” ….”

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“China’s stocks fell, heading for their longest losing streak in three months, as the country’s industrial output had the weakest start to a year since 2009 and lending and retail sales growth slowed.

Ping An Bank Co. led lenders lower after the nation’s new loans last month trailed analyst estimates. Liquor maker Sichuan Swellfun Co. dropped among consumer companies after the country’s retail sales growth in the first two months was the smallest for that period since 2004.

“The economic recovery is weaker than expected,” said Wang Zheng, Shanghai-based chief investment officer at Jingxi Investment Management Co., which manages $120 million. “Investors are worried that stocks may already have moved ahead of fundamentals.”

The Shanghai Composite Index (SHCOMP) dropped 0.8 percent to 2,299.17 at 9:39 a.m. local time, trimming its gain since last year’s Dec. 3 low to 17 percent. The CSI 300 Index (SHSZ300) declined 1.2 percent to 2,588.31. The Hang Seng China Enterprises Index (HSCEI) added 0.1 percent in Hong Kong. The Bloomberg China-US 55 Index (CH55BN) rose 1 percent in New York on March 8.

The Shanghai index retreated 1.7 percent last week on concerns the government will tighten monetary policy and regulators will allow the resumption of initial public offerings.

Industrial production climbed 9.9 percent in the first two months and retail sales rose 12.3 percent, the statistics bureau said over the weekend, trailing economists’ estimates. New local-currency loans in February fell to 620 billion yuan ($99.6 billion), the People’s Bank of China said, less than the estimates of 27 out of 28 analysts in a Bloomberg News survey.

Banks, Insurers…”

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“No downturn in Warren Buffett’s favorite economic indicator….Rail traffic has now reached its highest 12 week moving average since 2011.  With a weekly intermodal reading of 10.5% year over year the 12 week moving average is now at 6.75%.   Here’s more via AAR:

 The Association of American Railroads (AAR) today reported that U.S. monthly rail traffic showed mixed results in February, and gains in both carloads and intermodal traffic for the week ending March 2, 2013….”

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Sales are down 0.8%……

Initial Claims: Prior 344k, Market expects 350k, actual 340k ….continuing claims edge up to 3.094m

Productivity: Prior -2%, market expects -1.6%, actaul -1.9%

Trade Balance: Prior -$38.5b, market expects -$43b, actual $44.4

“German factory orders unexpectedly fell in January as the sovereign debt crisis curbed demand in the euro area.

Orders, adjusted for seasonal swings and inflation, declined 1.9 from December, when they rose a revised 1.1 percent, the Economy Ministry in Berlin said today. Economists forecast a 0.6 percent gain, according to the median of 41 estimates in a Bloomberg News survey. In the year, workday- adjusted orders dropped 2.5 percent.

The Bundesbank expects the German economy to rebound in the current quarter after contracting 0.6 percent in the final three months of 2012. Confidence among entrepreneurs and investors jumped in February and retail sales rose the most in more than six years in January. At the same time, the euro area, Germany’s largest export market, is in a recession and theEuropean Central Bank predicts only a gradual recovery later this year.

“After a long series of encouraging sentiment indicators, today’s new orders are a disappointment” and “a painful reminder that the crisis is not over yet,” said Carsten Brzeski, senior economist at ING Group in Brussels. “While the solid labor market and a sharp increase in retail sales in January already confirmed the growth-supportive role of consumption, the strengthening of industrial activity remains a very gradual and choppy one.”

Market Reaction….”

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“Consumer spending expanded in most Districts, but several Districts reported mixed or lower activity among non-auto retailers. Sales strengthened in the Philadelphia and Richmond Districts, and retail sales were higher than a year ago in the Boston, St. Louis, and Minneapolis Districts.

San Francisco reported modest growth in sales, Dallas noted flat to slightly higher sales activity, and New York said retail sales were strong in January but slowed in February primarily due to weather. The Chicago District said consumer spending increased at a slower rate, while Cleveland and Atlanta noted mixed sales activity.

Kansas City said retail sales decreased since the previous survey period and were expected to remain flat in the months ahead. Many District contacts commented on the expired payroll tax holiday and the Affordable Care Act as having restrained sales growth.

Many Districts noted rising gasoline prices and fiscal policy as having a negative effect on consumer sales, and contacts in the Boston, New York, and Minneapolis Districts said severe weather depressed sales somewhat.

Contacts in several Districts reported a shift in sales activity from local malls to the Internet and indicated deep discounting among retailers was becoming increasingly common. San Francisco noted somewhat soft sales for traditional retail grocers, whose competition has increased from discount and online retailers….”

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Commentary 

“Euro-area exports fell in the fourth quarter for the first time in more than three years and investment declined as the sovereign debt crisis pushed the region deeper into a recession.

Shipments from the euro area dropped 0.9 percent in the last three months of 2012, helping to drive gross domestic product down 0.6 percent, the European Union’s statistics office in Luxembourg said today. Exports last declined in the second quarter of 2009. Imports also fell 0.9 percent in the fourth quarter.

“Real economic activity is yet to show major improvement in many countries and it looks highly likely that growth will remain a major struggle for the euro zone for some time to come,”Howard Archer, chief European economist at IHS Global Insight in London, wrote in a note today.

The 17-nation currency bloc’s economy recorded a third straight decline in the fourth quarter, a trend that will continue in the first three months of 2013, according to a Bloomberg News survey of economists. The European Commission sees the economy shrinking 0.3 percent this year.

The European Central Bank will maintain its benchmark interest rate at 0.75 percent tomorrow with the euro area mired in a recession and political instability in Italy after an inconclusive election, according to a separate Bloomberg survey. The ECB will also update its economic forecasts.

‘Political Complacency’…”

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