Rosy German Economic Survey Gives Markets a Lift
Further evidence that the German economy, Europe’s largest, is picking up steam helped shore up markets on Tuesday as trading resumed on Wall Street after a three-day holiday weekend.
The German investor sentiment index from the ZEW institute rose to 48.2 points in February from 31.5 the previous month, way ahead of market expectations of a more modest rise to around 35. The index is now at its highest level for nearly three years and adds to the evidence suggesting Germany’s economy will not fall into recession - defined as two consecutive quarters of negative growth. Figures last week showed it shrank 0.6 percent in the final quarter of 2012 from the previous three-month period.
Europe’s economic fortunes rest heavily on its largest economy. A growing Germany has the potential to help those economies suffering from government debt-reduction plans and to limit the length of time the 17-country group of countries that use the euro remains in recession. Figures last week showed output across the eurozone shrank by a quarterly rate of 0.6 percent in the final three months of 2012.
"Risk appetite has been whetted ..... with the tone set by a much stronger than expected reading on Germany investor sentiment," said Jennifer Lee, an analyst at BMO Capital Markets.
In Europe, Germany’s DAX was up 1.2 percent at 7,723 while the CAC-40 in France rose 1.5 percent to 3,722. The FTSE 100 index of leading British shares was 0.7 percent higher at 6,360.
The euro also clambered off day lows to trade 0.2 percent higher against the dollar, at $1.3360.
In the U.S., the Dow Jones industrial average was 0.1 percent higher at 13,945 while the broader S&P 500 index rose 0.2 percent to 1,523.
Earlier in Asia, markets were weighed by concerns over new real estate curbs in China.
"Asian equities in general and the entire commodities sector are depending on stronger Chinese growth this year, much of which is expected to come from private construction," said Rebecca O’Keeffe, head of investment at Interactive Investor.
Chinese shares fared worst, with the Shanghai Composite Index down 1.6 percent at 2,382.91 and the smaller Shenzhen Composite Index closing 1.9 percent lower at 951.71. Elsewhere, South Korea’s Kospi rose 0.1 percent to 1,985.83 while Hong Kong’s Hang Seng index dropped 1 percent to 23,143.91.
Japanese investors booked some profits following Monday’s strong gains as many investors awaited news on who will be the next head of the country’s central bank. The Nikkei 225 index fell 0.3 percent to 11,372.34.
Prime Minister Shinzo Abe, elected on promises of bold action to ignite the moribund Japanese economy, is likely to appoint someone with views in line with the program he is championing. One element of the program includes a target of 2 percent inflation to reverse two decades of falling prices, which hurt growth. He has also indicated a preference for a weaker yen and over recent weeks that’s exactly what he’s got despite Tuesday’s modest appreciation.
The dollar was down 0.2 percent at 93.57 yen. Japanese stocks have soared in recent weeks as the yen has fallen in anticipation of steps that would push the currency lower. A lower yen makes Japanese exports potentially more competitive in international markets.
Oil prices were subdued, with the benchmark New York rate down 20 cents at $96.21 a barrel.