Business Blog Posts

The VIX, a gauge of investor anxiety, dropped this week despite unrest in the Middle East and oil prices are basically unchanged from two weeks ago. After posting its best week in the past nine, the S&P 500 has actually seen oversold levels tick lower.

"I expect the market to continue to rally despite the fact the economic news is sluggish in the jobs front," said Michael Yoshikami, chief investment strategist at YCMNet Advisors in Walnut Creek, California.

Government data showed Friday the U.S. economy created 36,000 jobs in January, far less than expected, but the unemployment rate fell to its lowest since April 2009. Economists agreed a recovery in the labor market was proceeding but not gaining speed.

Upbeat signals in the economy, coupled with a positive bias in the current earnings season, should continue to propel equities higher.

More than 70 percent of the S&P 500 companies have reported earnings above estimates so far, according to Thomson Reuters data. Investors expect aggregate earnings rose 37 percent in the last quarter, the highest estimate for that period in more than 10 months.

"We believe corporate earnings will continue to recover as companies are more efficient and economies bounce back," Yoshikami said.

FEW HURDLES AHEAD

The energy, industrials and technology sectors are "trading well into overbought territory," according to a report from Bespoke Investment Group. But two recent weeks of declines are helping ease overall selling pressure, and the rally that started in September shows no signs of weakness.

"This market has been really eating up resistance levels as an every week event," said John Kosar, director of research at Asbury Research in Chicago. "We targeted 1,313 for this week as a near-term inflection point, and we haven't broken it yet."

The target coincides with the benchmark's highest level in August 2008. Chartists have mentioned the 1,360 area, the 76.4 retracement of the S&P's downhill move from late 2007 to March 2009, as one of the few technical hurdles the index faces before hitting 1,400.

The S&P has risen 25 percent since the start of September, which has led to a lack of confidence and calls for a pullback. Still, the CBOE volatility index .VIX fell 20.5 percent this week after a near 30 percent spike in the two previous weeks.

"There's a healthy degree of skepticism and many people are still calling for a correction," said Richard Ross, global technical strategist at Auerbach Grayson in New York.

THIN DATA CALENDAR

Next week is slow in terms of economic indicators, with the preliminary reading of the Reuters/University of Michigan consumer sentiment as the highlight of the week.

Treasury said China's yuan should rise more quickly but said it lacked evidence to label Beijing a manipulator, a designation that could trigger trade action.

"Treasury's view...is that progress thus far is insufficient and that more rapid progress is needed," the report said. "Treasury will continue to closely monitor the pace of appreciation of the (yuan) by China."

The finding was no surprise and came in a long-delayed report to Congress that Treasury kept under wraps until after a state visit by Chinese President Hu Jintao last month.

One lawmaker said on Friday he would propose legislation next week aimed at forcing China to revalue its currency.

Treasury Secretary Timothy Geithner has been trying to prompt China into letting the yuan -- also known as the renminbi -- rise more swiftly, something that is seen as vital for rebalancing global growth.

A higher-valued yuan would make imports cheaper for Chinese consumers and encourage Beijing to seek more growth through domestic consumption than through exports.

Other countries including Brazil have similarly expressed unhappiness at the impact on their domestic industries from cheap Chinese imports. Geithner is visiting Brazil on Monday and has a chance to seek an ally for making the case at the Group of 20 meeting in Paris later this month that China should speed up yuan appreciation.

JOBS LOST, FACTORIES CLOSED

The decision in the semi-annual report, which was due last October 15, disappointed and angered lawmakers.

"China has been given a free pass on its currency practices for far too long," said Max Baucus, chairman of the Senate Finance Committee, which has jurisdiction over trade issues. "We need to hold China and our other trading partners accountable for their actions."

Democratic Rep. Sander Levin of Michigan said he would reintroduce legislation next week proposing to let the Commerce Department treat an undervalued currency as a subsidy under U.S. trade law. Companies could, on a case-by-case basis, seek countervailing duties against competing Chinese imports.

U.S. manufacturers have long complained that Beijing keeps the yuan deliberately undervalued in order to gain an unfair trade advantage that has put millions of American out of work.

China contends the yuan's value is not the main cause of the United States' mounting trade deficits and that if the currency did appreciate swiftly the effect would only be to shift production from China to other lower-cost countries.

The United States had a trade deficit of $252 billion with China during the first 11 months of 2010. Some of the largest U.S. retail chains source the vast majority of their products from Chinese factories.

Pacific Investment Management Company's (Pimco) chief executive, Mohamed El-Erian, told Der Spiegel that Greece's only way out of its debt crisis was for Europe to reduce Greek debt from 140 percent of gross domestic product (GDP) to 90 percent.

"Debts should fall under 90 percent of GDP," said El-Erian, who helps oversee more than $1.1 trillion in investments. "The people cannot withstand (the current savings program)."

El-Erian said international investors would only return to Greece once the economy was growing sustainably again. Athens could afford "to take a time-out from the euro" to achieve this, before joining the common currency bloc once again when it was on a more competitive footing, he said.

El-Erian said on Friday he was not yet buying Greek, Irish or Portuguese sovereign debt.

In the magazine interview, El-Erian also warned that the United States' current expansionary fiscal and monetary policies could drive inflation worldwide.

Instead, the U.S. should brace itself for "long-term weak growth, high unemployment and a new configuration of the world economy," he said.

(Reporting by Sarah Marsh)