Stocks climbed higher in Asian session today as China stepped up easing measures. The Chinese government announced, in order to boost credit, a reduction of reserve requirement ratio in 379 more branches in rural areas of the Agricultural Bank of China. The scheme was initially applied to 563 branches in 8 provinces. The reduction of the ratio by 2% is expected to free up RMB 23B. In the US session, the markets were a tad lower due to weaker than expected existing home sales data. Fed Chairman Ben Bernanke's comments nonetheless give some supports to market sentiment.
At the testimony before the House Oversight Committee, Fed Chairman Ben Bernanke welcomed the recent reduction in the Euroezone financial stresses. Yet, he remained cautious on the outlook and warned that the continuous difficult situation in the region would pose downside risks to the US economy. Investors probably viewed this as a signal that the Fed will maintain an accommodative bias. This was in contrast with Minneapolis Fed President Kocherlakota (non- voter in the FOMC this year). He stated that there's no need for additional accommodation right now. He even went on to suggest an exit of current stimulus as soon as this year if the unemployment rate fall further and inflation continues to rise.
Minutes for the BOE's March meeting unveiled that policymakers remained divided in the asset buying program. While the majority voted for maintaining the program at 325B pound, Adam Posen and David Miles favored more stimulus (adding an additional 25 pound) as it was 'warranted to reduce the risk that persistently weak growth would damage the future supply capacity of the economy'. The BOE also cautioned about inflation, indicating that there was a 'clear risk surrounded the outlook for crude oil prices'. As stated in the minutes, 'if oil prices were to rise to a level significantly higher than the committee currently assumed, then that would tend to slow the global and domestic recovery, reduce supply growth and put upward pressure on domestic costs and prices'. Martin Weale raised possibility of the 'risk that there may be more persistence to inflation'.
On the dataflow, existing home sales climbed to 4.59M in February from 4.57M a month ago. However, this still missed market expectations of a rise to 5.60M. In NY session Thursday, initial jobless claims will be released and the report probably showed a mild drop to 350K in the week ended March 22 from 351K in the prior month. Leading indicators might have climbed +0.6% in February following a +0.4% gain a month ago.