Global Briefing: Stocks Take Wing Behind U.S. Strength

Preparing for the March retail sales data.
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Wall Street's reversal yesterday helped lift global bourses today.

In turn, global bonds have seen yesterday's gains pared slightly. The dollar is generally flat after recovering from initial losses yesterday. The decline in options volatility in the currency markets suggests many players look for the dollar's recent ranges to remain intact.



rose about 1.25% to recoup more than half of yesterday's losses. Government bond yields were slightly higher after beginning the week at four-month lows. The

Ministry of Finance

will auction 10-year bonds next week and there is some concern that the low yield will discourage a healthy reception. Such fears may be being exaggerated as observers look for a reason behind what appears to be normal profit-taking.

First, Japanese finance officials have indicated that the Trust Fund Bureau will continue to buy government bonds

and this will help absorb the supply and more importantly bolster sentiment. Over the past two months, the Trust Fund Bureau has bought 400 billion yen in government bonds. The government intends to sell some 71.3 trillion yen in fixed-income securities this year to finance its large stimulative program and fund its bank-capitalization efforts.

Second, in their April monthly reports, released earlier today, the

Bank of Japan


Economic Planning Agency

left unchanged their assessment of the Japanese economy. The economy appears to have stopped contracting, but a genuine recovery is not in sight. Private demand remains sluggish.

Third, despite the political rhetoric before this past weekend's local elections, leading Japanese officials are not ready to endorse fresh stimulative measures. Last year the government announced nearly 100 trillion yen ($830 billion) in measures to boost the economy and strengthen the banking sector. Yet for five consecutive quarters through the October-December 1998 period, the Japanese economy contracted. If the economy does not appear on the mend by the summer, a supplemental budget for the second half of the fiscal year, beginning in October, remains a distinct possibility. But calls for it now seem defeatist rather than anticipatory in nature.

European equity markets rose around 1% at the beginning of trading today

before stabilizing to await fresh directional cues from the U.S. market. Multinational shares, like those of





, were among the leading advancers. News that car registrations in Western Europe rose 20% on a year-over-year basis also lent support to the automotive sector, even though slightly more than half the increase was accounted for by new license plates in the U.K., rather than new car sales per se.

Auto registrations rose 6.6% in the first quarter compared to the same period a year ago. Germany, the largest economy in Europe, however, is bucking the trend and has seen car registrations fall for in both February and March.

Merrill Lynch surveyed 77 European money managers in the last week of March -- prior to last week's

European Central Bank

rate cut -- and found that a full quarter believed Continental equities were undervalued, the highest percentage since last November, according to press coverage of the survey. It appears these money mangers are shifting back into growth stocks from their previous defensive posture. Telecommunications and banks were among the favorite sectors.

Real sector economic news in Europe is light.

Germany did report a much larger-than-expected trade surplus for February, though because of the conversion to the euro, the current-account data is not available. The merchandise trade surplus widened by nearly a third to 11.5 billion marks from 8.8 billion marks in January. The consensus expected around a 9.8 billion-mark surplus.

While the market is well aware that the financial crisis in Asia, Russia and Brazil has damped demand for German exports, the surprise lay with the decline in imports. Imports fell 1.3%, while exports slipped 0.6%. The German economy contracted in the fourth quarter and the decline of imports warns that there probably has not been much improvement in the first quarter. Moreover, by selling the world more goods than it buys, Germany is not acting as an engine of world growth.

The resignation of Sweden's finance minister yesterday amid signs that the Social Democrat government is considering loosening up the purse strings and today's inflation report at the high end of expectations means the


, Sweden's central bank, has lost any room it might have had to lower interest rates further. Erik Asbrink resigned as finance minister yesterday in an apparent dispute with Prime Minister Goeran Persson, who over the weekend suggested scope for tax cuts as early as next year, the budget for which is expected to be unveiled tomorrow. Yesterday Persson played down his weekend comments and suggested the scope for tax cuts are really in 2001.

A restrictive fiscal policy and falling inflation allowed the Riksbank to purse an accommodative monetary policy.

Persson's comments undermine the former and today's CPI report warns that the best news on the latter may be behind it. The 0.4% rise in Swedish prices in February was at the high end of expectations. It leaves the year-over-year rate unchanged after falling for the past six months. The Swedish krona has weakened against the euro and this may be lending marginal support to Europe's new currency.

The U.S. releases March consumer prices and retail sales reports today that could help set the tone for today's North American session. Consumer prices are expected to have risen by 0.3% in March after rising 0.1% in both January and February. Higher gasoline and home heating oil are the likely culprits. The core rate, excluding the volatile food and energy components, probably rose by around 0.2%, with an increase in medical care costs setting the tone.

The bottom line is that price pressures remain modest at best.

The consensus calls for a 0.4% rise in March's retail sales, according to a

Market News Service

survey. This represents a clear moderation from the 1% and 0.9% increases posted in January and February, respectively. If there is a risk, it is that the consensus is underestimating the impact of the early tax refunds and the early Easter on U.S. retail sales.

Watch the subindex of purchases of household durable goods to get a better handle on the strength of the U.S. consumer. Such purchases are regarded as more discretionary and therefore sensitive to consumer sentiment. Those data are likely to leave the June U.S. Treasury bond future in range today between 122-16 and 123-16.

Marc Chandler is an independent global markets strategist who writes daily for At the time of publication, he held no positions in the currencies or instruments discussed in this column, though positions may change at any time. While he cannot provide investment advice or recommendations, he invites you to comment on his column at