Daily Agenda: Equity Markets Shrug Off Risks

Japanese CPI disappoints; German legislature votes in favor of Greek bailout; 2015 growth forecast strong for India.


U.S. equity investors have signaled that despite growing clouds on the horizon, low-key testimony from Federal Reserve chairwoman Janet Yellen and a temporary fix for Greece are sufficient to keep the bull’s party rolling. With a somewhat downbeat earnings season now all but over, and no signal of geopolitical risk factors spilling into markets, complacency appears to be the order of the day. The major question among stock investors remains a debate over valuations, with bears arguing that historically rich multiples flashing a warning signal. In a note to clients David Rosenberg, chief economist at Gluskin Sheff in Toronto, wrote that the so-called Fed Model, a comparison of the forward/earnings yield of the S&P 500 to the yield on ten-year U.S. Treasury notes, suggest that equities remain reasonably priced because of stubbornly low global interest rates.

No relief for Japan. Critical January consumer inflation data released today in Tokyo demonstrated that the best efforts of policymakers at the Bank of Japan has yet to fully succeed. Headline consumer price index data registered in line with consensus forecasts at 2.5 percent year-over-year but excluding the volatile food component, prices rose by a lower-than-anticipated annualized 2.2 percent. Household spending figures for the month also registered much lower than forecast, contracting by 5.1 percent versus the same month in 2014. One bright spot was Industrial production, which expanded by 4 percent over December, as a weakened yen drove greater shipments abroad.

Germany approves Greek bailout. The Bundestag today approved the Eurogroup’s temporary credit extension for Greece with the majority of Chancellor Angela Merkel’s coalition members voting in favor. Despite the strong showing in favor of the deal, many lawmakers supporting the extension pledged to take a hard line with Greek Prime Minister Alexis Tsipras and Finance minister Yanis Varoufakis if the duo resume demands for an end to austerity measures. Separately, protests in Athens took a violent turn today, as some marchers threw Molotov cocktails and set fire to cars to protest what they perceived as the new Syriza party-led government’s caving in to European Union demands.

U.S. economic indicators to be released. In the U.S., Bureau of Economic Analysis revised fourth-quarter GDP figures released this morning registered a stronger pace of growth than consensus economic forecasts. At an annualized 2.2 percent, the revision fell short of the initial estimated headline rate of 2.6 percent but resilient personal consumption levels helped to offset reduced inventory investment. University of Michigan consumer sentiment levels for February dropped slightly to 95.4 from an 11-year high of 98.1 in January. Analysts point to harsher-than-normal winter temperatures as one reason for the slight slump; however sentiment levels remain above pre- 2008-'09 financial crisis levels.

India sees improved prospects for growth. Standard & Poor’s lowered its Asia growth forecasts yesterday, citing in its report “Weaker growth in China and Japan may be weighing on overall sentiment, although India’s star is rising.” Separately, India’s Finance Ministry today released 2015 GDP projections potentially to reach a four-year high of 8.5 percent, a positive outlook enhanced in part by a new calculation methodology.

Lloyds posts rebound in earnings. London-headquartered Lloyds Banking Group announced full-year 2014 earnings that beat analyst estimates. Pretax profits came in at £1.8 billion ($2.78 billion). To celebrate the sharp return to profitability, the currently 24 percent state-owned bank announced a share dividend of £0.75.


Moscow to meet with mediators. The Kremlin confirmed a meeting to take place on Monday with representatives from the EU and Ukraine to negotiate natural gas deliveries to the continent. With more than two thirds of EU gas coming from Russian suppliers — most of which passes through Ukrainian pipelines — tensions over fighting in the region have disrupted local energy markets. Russian government-controlled Gazprom has recently been supplying gas directly to separatist-controlled regions in Ukraine while demanding payment from Kiev.