NEW$ & VIEW$ (29 MARCH 2016):

Pending-Home Sales Jumped 3.5% in February The number of existing homes that went under contract in the U.S. rose in February, a sign of steady momentum for the housing market.

An index measuring pending home sales—a gauge of purchases before they become final—jumped 3.5% to a seasonally adjusted reading of 109.1 in February, the National Association of Realtors said Monday. That was the highest level in seven months. January’s reading was revised down to 105.4 from an initially reported 106.0.

“Steady momentum”? MoM: Dec: +0.9%, Jan: –3.0%, Feb: +3.5%.

YoY in Feb: +0.7% nationwide. NE: +12.6%, Midwest: +2.5%, South: –0.4%, West: –6.2%. (Chart from Haver Analytics)

Growing labour force belies grim US mood Increasing evidence of a tightening jobs market

(…) Economists at the International Monetary Fund predict that recent gains in the participation rate, which measures those in work or actively looking for a post, are set to continue for a little while longer, rising from the current 62.9 per cent to above 63 per cent in the coming months as the jobs market strengthens.

“It’s part of a cyclical move towards a truly tight labour market. We’re not there yet, but this is the final piece in the puzzle,” said Stephan Danninger, a Washington-based division chief at the IMF. (…)

The period from September 2015 to February 2016 saw the US labour force grow by just over 2m workers, the largest five-month increase since 2000, according to Joseph LaVorgna, an economist at Deutsche Bank. (…)

Mr Danninger said that new people coming into the labour market on average get paid less than those already active, which may be helping suppress wage growth. Once that damping effect has played its course — potentially towards the end of the year — wage pressures could pick up. (…)

Japanese Retail Sales Plunge Most Since 2010

4th monthly decline in a row and absent the tsunami and tax-hike reaction, this is the worst drop since Dec 2010…

WORLD ECONOMY

• Flood of Central Bank Moves Can’t Get World Economy Out of Rut

• OECD’s Gurria Calls for Demand-Side Measures to Spur Inflation

• Abe Says Japanese Government Will Front-Load Budget Spending

• BlackRock Joins Pimco Warning Investors to Seek Inflation Hedge

SENTIMENT WATCH

The Markets Have a Message: Don’t Believe This Rally

(… Some of the highest-risk assets chalked​up spectacular gains​during the recovery. The J.P. Morgan Emerging Markets Currency Index rose 8%, a gain matched in such a short time only once since the index was created in 2000. U.S. junk bonds leaped 8% in price, the biggest jump in the Bank of America Merrill Lynch benchmark over such a short period since the summer of 2009, when the country was just emerging from recession.

U.S. shares didn’t miss out. From its February low, the S&P 500 recorded its biggest gain over an equivalent period since late 2011, rising more than 12% by the middle of last week; it is still up 11%.

Commodity prices, which started to rebound a couple of weeks earlier, have had their biggest rise over an equivalent period since late 2010.

Traders talk of “risk on” times, and the past six weeks rank as one of the biggest risk-on rallies since the global financial crisis.

Yet the picture isn’t one of wild risk-taking, whatever the headlines appear to suggest. Three of the traditional safe assets to which investors fled in January and early February haven’t fallen back as risky assets gained.  The yen, gold and the Swiss franc remain elevated compared with the start of the year, and while they have fluctuated, they are almost as strong as on Feb. 11, the day equities and credit hit their trough.

This is unusual, to put it mildly. Safe assets normally move in the opposite direction to risky assets, as investors switch between fear and greed. U.S. Treasury bonds, another safe asset, have sold off, but by much less than risky assets rose. Yields on the 10-year bond, which rise as prices fall, are up 0.24 percentage point from their low, to 1.87%.

How do these signs of fear square with the stunning rise in equities and emerging markets? Put simply, this has been a misery bounce driven by stronger commodities. It isn’t a rebound to enthuse investors.

Worries have changed, rather than gone away. In February, investors feared recession, deflation, Chinese devaluation, falling profits, excessive emerging-market debt and corporate defaults due to cheap oil. More expensive oil assuaged some of these concerns and prompted a repricing of commodity-linked assets and of inflation-linked assets. That boosted emerging markets, junk bonds and mining stocks, while prompting a flood of cash out of money-market funds.

Consider mutual-fund flows. Cash has poured back into junk-bond funds, emerging-market equity and debt funds, and commodity funds, according to tracking by EPFR Global.

There were government-bond outflows, but almost all of it has been due to a rotation into equally safe inflation-linked government-bond funds.

Within the equity market, the safest, most boring utilities have led the market up. Smaller companies, which almost always outperform in a rising market, have done much less well than usual. The U.S. Russell 2000 index of smaller company shares still is down about 5% this year, even as larger companies stand pretty much where they started January.

Concerns also are evident in the options market, where traders can use put options to protect against share prices falling, or call options to profit from rising shares. The ratio between the two is often watched as a measure of speculators’ willingness to take risk—and indicates far more caution than usual.

The message from the markets is that investors don’t really believe in the rally.

This could be seen as great news for the contrarian. Markets climb a wall of worry, and there still are plenty of concerns out there that can be overcome, helping prices higher.

The best bets on this view are those that lagged behind during the rebound, such as financial or luxury-goods stocks—but given the fear, don’t expect a smooth ride.

Just last week, there were these:

• Half of World Stocks Embrace Bull Market on Fed-Fueled Rally

• It’s Getting Harder to Support a Bearish View on Stocks

• Transport Stocks Signal Markets on Track

Bloomberg this am:

Barclays Plc is cautioning that commodities including copper and oil are at risk of steep declines, saying that an investor rush for the exits could cause prices to tumble. With signs of investors already becoming wary of the recent rally in copper and data showing that the latest oil rally is not gaining fans, there may be something to the warning.

The Economist:

Big, getting bigger: China’s M&A boom

What do hotel chains, film-makers and semiconductor firms have in common? If they are for sale, Chinese companies want to buy them. Anbang, a Chinese insurer, raised its bid for Starwood Hotels & Resorts to $14 billion yesterday. Globally, merger-and-acquisition volumes are down by roughly 25% in the first quarter from a year earlier. But China’s appetite is insatiable: its spending has more than tripled to $100 billion, accounting for one-third of cross-border M&A announced this year. Slower growth at home and the yuan’s depreciation have boosted the appeal of foreign assets. The bigger story is that Chinese companies have long punched below their weight in global investment, focusing mainly on commodities. They are now ranging more widely, buying high-tech firms and consumer brands. They also tend to offer juicy prices, partly thanks to support from state-owned banks. Global regulators fret about security risks. Sellers, though, are not complaining.