April 2, 2009

Economic Outlook: Minding the store

Asian and European markets surged Thursday as world leaders began a final day of negotiating in London on global regulations and stimulus measures.

In Hong Kong, the Hang Seng index jumped 7.4 percent and closed at 14,521, boosted by a 15.3 percent rise in HSBC Holdings.

The Nikkei 225 in Japan rose 4.4 percent, closing at its highest level since early January. The Kospi index in South Korea climbed 3.5 percent, while Australia's S&P/ASX 200 rose 2.81 percent. In China, the Shanghai Composite advanced less than 1 percent. The Singapore Straits Times index made stronger gains, rising 5.94 percent.

Major European markets also made gains with the DJStoxx rising 3.58 percent, the FTSE 100 in Britain gaining 2.94 percent, the DAX 30 in Germany rising 4.29 percent and the CAC 40 in France rising 3.30 percent.

While world leaders made preliminary, broad-sweeping statements in advance of Thursday's summit, there was, after all, a store to run. In the United States, investors were digesting a slew of reports Wednesday, including data that showed manufacturing slow but not as slow as a month before with new orders gaining substantially. Home prices continued falling, which may kick start the housing market. Construction spending continued to fall but automobile sales figures for March showed some improvement over February's record lows.

Pending home sales were also improved in February.

Thursday's reports include U.S. jobless claims, expected to run around 650,000, and factory orders, which fell 1.9 percent a month ago.

In London, the meeting of the minds includes a banded effort between France and Germany to conclude the Group of 20 summit with substantial progress on regulatory issues, which may prove an uphill battle and U.S. efforts to spur stimulus spending, another tall order.

Claiming the separation between the various parties involved has been vastly overstated, U.S. President Barack Obama pledged progress on regulatory issues but may not go so far as French President Nicolas Sarkozy's demand for an international regulatory agency.

Sarkozy has called his proposal nonnegotiable and German Chancellor Angela Merkel at a news conference said Germany and France will speak with one and the same voice, The Wall Street Journal reported.

Whether the tough stand proves fruitful remains to be seen but Sarkozy is looking for progress on other matters, as well.

He wants tighter control of hedge funds and new guidelines for credit rating agencies. More pointedly, he demanded traceability in the banking community for securitizations. A bank that engages in securitization should keep on its balance sheet a part of what it has securitized, he said.

Obama has called for new regulations for derivatives markets and off-balance-sheet vehicles, the Journal said. He will also press for a tougher stance on protectionism and emphasis on supporting emerging markets.