The U.S. economy is on the road to recovery

Orders for non-defense capital goods, which is a proxy of business investment in new equipment, increased by 0.5% in January, after falling by 1.2% in December. Orders for automobiles and associated parts increased by 4.3% in January. As the economy picks up, business investment in 'new technology' should increase. Interest rate is expected to stay low for some time. Investment analysts are recommending increasing equity holdings ahead of the anticipated turnaround in major earnings.

In Canada, the Bank of Canada projected a 3% increase in business capital expenditure, on the back of technology upgrade and expansion of facilities. Air transportation companies said they would invest CAD1.80 bn and retailers another CAD5.5bn to increase store space. In addition, the government would boost capital spending by 8.2%, to be used mainly in municipal construction, and purchase of new machinery and equipment. The Bank of Canada is expected to leave its key interest rate unchanged on the March 5 meeting.

Germany, France and Italy, altogether account for about 70% of gross domestic product of the eurozone, posted strong increases in business confidence in January. In December, manufacturing output in Italy showed a rebound, the first time in four months. February's consumer confidence in Italy was at its peak of the past 12 years. The European Commission expects the economy could expand as much as 0.4% this quarter.

In France, unemployment rate rose to a 15-month high of 9.0% in January. The government has promised tax cuts worth euro 30.0bn to revive the economy and to create more jobs ahead of the presidential and legislative elections in May and June.

In Japan, industrial production unexpectedly dropped one percent in January (consensus expected a 0.5% gain). This has dashed hopes of a rebound in exports.

The government's anti-deflationary package features a pledge to inject public funds into banks in case of financial crisis, and called on the Bank of Japan to take further measures to ease credit. This is the beginning of a series of measures that the government plans to unveil over a two-year period to combat deflation. The package is not expected to resolve concerns toward Japan as it fails to offer bold measures to restore investors' confidence.

The level of inventories dropped by 1.1% in January, the fifth straight decline. This suggests that Japan's inventory adjustments could be over by mid-year, lagging that of the U.S. by 3 to 6 months. The industrial sector is expected to report 10 to 20% growth in profits on the back of a U.S. recovery, the weaker yen, and effects of restructuring. The weaker yen should strengthen Japan's global competitiveness in the longer term.