Global Confidence Rises to 11-Month High as Credit Markets Thaw

By Shamim Adam

April 16 (Bloomberg) -- Confidence in the global economy rose to an 11-month high as officials stepped up efforts to thaw credit markets, stocks rallied and some banks returned to profit, a Bloomberg survey of users on six continents showed.

The Bloomberg Professional Global Confidence Index climbed to 21.2 in April from 5.95 in March, the biggest increase since the survey began in November 2007. A reading below 50 means pessimists outnumber optimists. Sentiment climbed the fastest in Asia and the U.S. as respondents around the world became more confident the worst may be over for their economies.

“The outlook was completely hopeless a month ago and now there’s a slight ray of hope that a recovery in financial markets will lead to a recovery in the broader economy,” said Chris Rupkey, chief financial economist at Bank of Tokyo Mitsubishi UFJ Ltd. in New York, and a survey participant. “Things are not as gloomy as before. We will improve slowly, probably in fits and starts.”

Lenders from Citigroup Inc. to JPMorgan Chase & Co. said they made money in the first two months of the year as zero interest rates and central bank purchases of government debt led to a jump in home loans. At the same time, manufacturing is declining and unemployment rising amid a drop in global demand that may see world trade shrink as much as 9 percent this year.

The survey of more than 1,300 Bloomberg users was conducted between April 6 and April 10. Since the previous survey, Federal Reserve Chairman Ben S. Bernanke said the “sharp decline” in the U.S. economy is easing, and the Group of 20 nations increased the resources of the International Monetary Fund.

Largest Economy

A measure of U.S. participants’ confidence in the world’s largest economy rose to 23.9 from 5.2, the survey showed. Sentiment jumped in all other markets, with the index for Japan climbing to 22.2 from 4.5. The gauge for Western Europe advanced to 14.2 from 8.2.

Bloomberg users from Milan to Mexico City became more confident in stock markets, the survey showed. The MSCI World Index has climbed 12.6 percent in the past month, and U.S. banking stocks are up 31 percent in the same period.

“While the worst of the recession may be behind us, the path out of it will take many years,” said Guy LeBas, chief economist at Janney Montgomery Scott LLC in Philadelphia, who is a regular survey participant. “The financial sector is in less bad shape in part because of the policy responses.”

The Fed announced plans in March to acquire as much as $300 billion in U.S. Treasuries over six months and more than double mortgage-debt purchases to $1.45 trillion.

Willing to Lend

Yields show banks are more willing to lend as the gap between what they and the U.S. Treasury pay to borrow money for three months, the so-called TED spread, narrowed to 95 basis points from 2008’s high of 4.64 percentage points in October.

The London interbank offered rate for three-month dollar loans is dropping at the fastest pace since January. The rate was 1.11 percent yesterday, from 1.31 percent a month ago.

“The fiscal stimulus and credit easing have put a floor under confidence,” said Kenneth Broux, an economist at Lloyds TSB Group Plc in London, who takes the survey regularly. “The leading indicators, and the rally in equities, will make people feel slightly less bearish.”

In Latin America, confidence rose to 23.6 in April from 11.6 last month, while the index for Asia increased to 36.6 from 12.7.

Japanese Prime Minister Taro Aso unveiled a record 15.4 trillion-yen ($156 billion) stimulus package on April 10 aimed at creating jobs in an economy heading for the worst recession since 1945.

Japan’s Stimulus

The pledge, which will bring total spending to 25 trillion yen, came after exports plunged an unprecedented 49.4 percent in February. Reports released in the past month show companies plan to increase output after draining inventories, merchant sentiment climbed to an eight-month high in March, and manufacturers expect to be less pessimistic next quarter.

“Production has started to stabilize and, at the same time, the effects of the new fiscal package will start to feed through,” said Kiichi Murashima, chief economist at Nikko Citigroup Ltd. in Tokyo, who predicts the economy will contract at a slower rate this year thanks to Aso’s plan.

The U.S. dollar may weaken in the next six months against the world’s most active currencies, with the index falling to 42.9 compared with 53.4 in March, the survey showed.

Users in Japan are evenly divided on the direction of the yen against the dollar compared with March, while people in Western Europe are confident the euro will strengthen against its U.S. counterpart.

Most respondents around the world still expect short-term interest rates to fall, the survey showed. The European Central Bank lowered its benchmark rate by a quarter-point to 1.25 percent on April 2, while the Bank of Mexico, which cut its rate by 75 basis points last month, may trim it again this week.

“Any indication that central banks or governments are pulling back on policy responses could be perceived as very negative,” said LeBas of Janney Montgomery Scott. “The global economy still needs propping up.”

To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net