Good Econ Data = More Meltup in the Risk Trades     

• In a word, the economic news is good and very supportive of risk trades. The March JP Morgan global PMI was 56.7 versus 55.4 in February, near a 6-year high. �gGrowth of production and new orders regained most of the momentum lost in February, while global trade volumes rose at a survey record pace�h, was the JP Morgan comment. US employment is increasing the most since May 2007.
• Shorter-term, we don�ft think USD rally is over yet, either against major trading partners, JPY or EUR. Even savvy Goldman and Citigroup ended recent bets against USD after losing on the trades. Our guess is that USD does have a good chance of rebounding to the 90 level. We therefore remain long USD, underweight EUR and JPY. After insisting that JPY was going back to JPY85/USD, foreign currency strategists and traders have capitulated and are now moving to short JPY.
• The Nikkei 225 is at an 18-Month high and comfortably back above 11,000, with increasing talk of 15,000 within 2010. For a while, it seemed there was essentially no positive catalyst for Japan. However, the Hatoyama Adminstration�fs stimulus measures seem to have brought about a welcome perk-up in domestic consumption, Japan�fs exports are surging off very low YoY comps, and the BOJ is also now playing ball by offering some JPY20 trillion of liquidity for corporations. Business confidence as measured by the BOJ Tankan DI (diffusion index) is showing a marked recovery from a very deep trough of -60 in early 2009. The March Tankan survey is also pointing to a sharp 49%+YoY rebound in corporate profits for large manufacturers, a historically high recovery rate.
• By sector, investor attention is now shifting to capital expenditures, selected retail and shipping stocks. While exports and production of automobiles and electronic equipment were the hardest hit by the global crisis, autos, consumer durables and electronic components have led the recovery in Japan�fs production, while capital goods have lagged.  Given the sharp recovery in corporate profits, however, there are already signs that once-moth-balled capex plans are being dusted off and re-considered. Japanese shipping stocks have lagged the rebound in shipping rates as investors discounted massive swings from historical profits in FY2007 to deficits in FY2009. Earnings however are now in a sustainable recovery mode.

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