Global Markets

Equities were mixed for the week. Investors were addled by a variety of political and economic events. There was relatively little new solid economic information to stimulate risk taking. Indexes are at very high levels and investors are cautious.

Among the factors that concern investors globally is the current guessing game about when the Federal Reserve will begin to increase its fed funds rate. Despite comments from Chair Janet Yellen that a change of policy could happen at any time, the markets are focused on either June or September for lift off, which is when FOMC meetings are followed by press conferences. The focus on the U.S. economy comes as investors fret about an expected interest rate increase by the Fed later this year — the prospect of which threatens to sap money from riskier assets, including stocks.

Of late, a string of disappointing U.S. economic data has investors wondering if it will delay an increase in rates. Many economic indicators currently being released were affected by poor winter weather. The question now is whether they will bounce back in the second quarter. It is a foregone conclusion that growth slowed in the first quarter of 2015.

Other factors that influenced equity trading last week were the situation in Yemen especially given its geographic location regarding the flow of oil from the Middle East. The price swings in oil prices have had a direct impact on energy company shares. Dragging on financial markets are Greece's negotiations with its creditors. The markets continue to wait for some sort of an agreement to be reached.

Global Stock Market Recap

Europe and the UK

Equities mostly retreated last week — the exception was Spain's IBEX which edged up 0.1 percent. The SMI led the decline, down 3.3 percent while the FTSE was 2.4 percent lower after closing at a record high over 7,000 the previous week (ending March 13). The DAX declined for the first week since January 9 while the SMI was down for the first week since January 16. The FTSE underperformed, weighed in part by a slide in mining stocks on news that Chile's copper mining industry has been hit by torrential rain that has forced the shutdown of some of the world's largest mines.

Global stocks had suffered sharp declines during the week, burdened by downbeat U.S. economic data and fresh tensions in the Middle East as Saudi Arabia and other Gulf states launched airstrikes against rebel forces in Yemen's capital. That triggered a rush into assets deemed less risky during times of volatility such as gold and the yen and away from stocks. On Friday, however, that move showed signs of unwinding. The situation in Yemen remains grim, but investors are optimistic that the conflict will have little effect on oil supplies. The market is well supplied and Yemen is a very small producer, with an output of around 145,000 barrels per day in 2014. But geographically, it is in a strategic location regarding supplies that pass through the Suez Canal.

Investors continue to be wary as Greece tries to come to an agreement with its creditors. It is expected to submit its reform proposal later on Friday. So far, no details have been given about what those reforms may entail.

European shares have enjoyed a strong run so far this year fueled by the European Central Bank's bond buying program. But signs of an improving economy in Europe and any pickup in inflation from ultralow levels could challenge the market's conviction that ECB stimulus is here for the long term, some investors say.

Asia Pacific

Equities were mixed last week with seven of 12 indexes followed here declining. At the beginning of the week, the only data of note were the March flash manufacturing indexes for China and Japan. Both disappointed with China's falling below the breakeven 50 level while Japan's weakened but remained barely above 50. Investors were cautious at week's end because of the ongoing conflict in Yemen. While markets downplayed supply threat from Yemen, apprehensions that the battle will probably escalate into a regional war kept investors cautious.

The rally continued in Mainland China with the Shanghai Composite adding 2.0 percent on the week to its already impressive gains in March. China's flash manufacturing PMI slid to 49.2 from the 50.7 final in February. Equities advanced on the expectations of additional stimulus from Beijing to help the ailing economy. The Hang Seng was not as exuberant, adding 0.5 percent.

After increasing for six consecutive weeks, the Nikkei retreated 1.4 percent as the end of the fiscal year approached (March 31). The index was down three of five days. Once again the value of the yen influenced the direction of the markets. However, disappointing economic data helped to depress investor enthusiasm as well. The week's data began with a decline in the flash manufacturing PMI index indicating much slower growth as the index slid to 50.4 from 51.6 at the end of February. Most of the data released Friday (local time) were weak as well. The core CPI (the CPI less fresh food) adjusted to remove the effects of the sales tax increase in April was unchanged on the year leading to doubts that the Bank of Japan's aggressive policy to eliminate deflation isn't having the desired effect. And the consumer continues to be conservative — both retail sales and household spend retreated in February. Shipping stocks were particularly affected by the situation in Yemen as the airstrikes stoked worries of disruption to oil transportation sea lanes.

Japan's exports have struggled for the past two years because of lower demand for capital goods, a shift in production overseas and a loss of competitiveness, but those structural problems are fading away, according to the Bank of Japan. As the structural problems become less of a factor, exports are likely to expand and will get an added boost from the yen's recent weakening, the Bank said in a report. Strong exports are important because they keep factory workers employed, supporting consumer spending and the central bank's plan to achieve 2 percent inflation.

Japan tends to export a lot of capital goods, but these exports slumped after the 2008 financial crisis as companies across the globe cut back on capital expenditure, the report said. A turnaround took longer than expected as some emerging market economies like China were saddled with excess production capacity. However, capital expenditure globally has finally started rising again, which will increase demand for the heavy machinery and manufacturing equipment that Japan produces, according to the report.

The Sensex ended a choppy session largely unchanged Friday after declining for eight previous days and after a big sell-off on Thursday. While markets downplayed the supply threat from Yemen, apprehensions that the battle will probably escalate into a regional war kept investors cautious ahead of long holidays next week. On Tuesday, the Asian Development Bank (ADB) said it expects India's growth rate to surpass China and improve to 7.8 percent in next fiscal and further to 8.2 percent in 2016-17 on the back of government's structural reform agenda and improved external demand.

Currencies

The U.S. dollar was mixed last week, gaining against the pound sterling and the Canadian and Australian dollars but declining against the yen, euro and the Swiss franc. The U.S. currency, after impressive gains running up to the FOMC announcement on March 18, retreated — especially against the euro. The currency was volatile during the week. However, negative economic news which would have pushed the dollar lower vied with 'Fed speak' and FOMC members' suggestions that the Fed would increase rates this year.

The euro remained some way off its 12-year low of under $1.05 reached earlier this month after the European Central Bank launched its massive bond buying program, but some strategists are still adamant that it will return to those levels and even head to parity against the dollar later this year, especially if a strong run of U.S. economic data materializes.

Selected currencies — weekly results

Commodities

For the 16th consecutive week, U.S. oil rigs have come offline. But the pace is slowing. The number of rigs in the U.S. drilling for oil was down by 12 to 813 in the week to March 27, the smallest decline since December, according to the weekly count published by Baker Hughes. The pace of decline slowed from the previous week when 41 rigs were taken offline. The oil rig count has fallen 48 percent since December. Both West Texas Intermediate, the U.S. oil marker, and Brent, the global oil benchmark, declined. A glut of supply and lacklustre demand alongside strength in the U.S. dollar depressed oil prices last year.

The slide in rig counts had lifted oil prices in January by stoking hopes that production would soon ease. But with U.S. oil inventories at their highest level in at least 80 years, investors have taken the view that there will be a lag between when oil rigs are removed from service and the time that oil production will slow.

Strategists at Bank of America said the declining rig count will not drive a collapse in shale production, in part, because producers took the vertical, or less efficient rigs, off line first. The more efficient horizontal rigs have accounted for a growing share of the rig count declines in just the last three weeks.

Indicator scoreboard

EMU

March flash composite output index climbed to 54.1, up from a final 53.3 and at its highest level in nearly four years. The headline improvement reflected stronger performances by both the manufacturing and service sectors. The former's PMI climbed a surprisingly large 0.9 points to a 10-month peak of 51.9 while the latter was also up a stronger than anticipated 0.6 points at a 46-month high of 54.3. New orders expanded again in both areas, total backlogs rose for a second successive period and employment grew at its fastest pace since August 2011. Meanwhile, deflationary pressures were again a feature but not as intense as in mid-quarter. While input costs climbed at their steepest rate in eight months, another drop in total output prices was only marginal and wholly attributable to a decrease in services. Manufacturers saw their first, albeit minor, rise in seven months. The core countries both made fresh headway but faster growth in Germany (composite output index 55.3 after February's final 53.8) contrasted worryingly with a slowdown in France (51.7 after 52.2). Elsewhere in the region economic activity expanded at its fastest rate since last July and, more significantly, new orders growth registered its strongest increase since July 2007.

February M3 was up 4.0 percent on the year from a significantly weaker revised 3.7 percent rate in January. However, the 3-month moving average measure still climbed from a downwardly revised 3.5 percent rate at the start of the year to 3.8 percent, its fastest pace since May 2009. Private sector bank lending remained sluggish although annual growth did edge up a tick to minus 0.1 percent. Within this, borrowing by households slowed to a minus 0.2 percent yearly rate from minus 0.1 percent last time and loans for house purchase dipped from zero to minus 0.1 percent. More positively, lending to non-financial corporations increased from minus 1.2 percent to a minus 0.7 percent rate. Lastly, borrowing by non-monetary financial corporations (excluding insurance companies and pension funds) decreased 0.8 percent from a year ago after a 1.4 percent decline last time.

Germany

March Ifo's business climate indicator climbed to 107.9, up 1.1 points from its February reading. Sentiment on this measure has now improved for five months in a row. The latest gain reflected progress in both the current conditions and expectations components. The former gained 0.7 points to 112.0, its fourth increase since October and also its strongest mark since the middle of 2014. Expectations improved more substantially, increasing 1.4 points to 103.9, a fifth successive increase and the largest over the period. They are now at their most optimistic level since last June. The headline gain was broad-based among sectors with just construction suffering a reversal. Confidence in manufacturing, retail and wholesale all posted respectable advances to new multi-month peaks.

United Kingdom

February consumer prices were up 0.3 percent on the month. On the year, the CPI was unchanged, a new record low for the current measure. The main downward pressure on the annual rate came from recreation & culture where prices were flat on the month this year after a 0.8 percent increase over the same period a year ago. Food & non-alcoholic drinks (down 0.2 percent after 0.5 percent) also subtracted as did furniture, household equipment & maintenance (1.4 percent after 2.4 percent). There were no other positive contributions of any significance. Core CPI was up 0.5 percent and was up 1.2 percent on the year.

Both February input and output prices edged up 0.2 percent on the month. As a result, annual input cost inflation moved up from minus 14.1 percent to minus 13.5 percent while factory gate inflation edged just 0.1 percentage point firmer to minus 1.8 percent. Most components of the output price basket were relatively stable over the month with the only notable exception being petroleum products which saw a 1.5 percent jump. As a consequence, core factory gate charges were only slightly weaker, posting a 0.1 percent increase from January to stand 0.2 percent higher on the year after a 0.3 percent annual gain last time. The lack of volatility in overall input costs masked a nearly 10 percent monthly jump in crude oil and a 3.8 percent slump in imported metals. Imported chemicals (down 1.8 percent) and imported parts & equipment (down 1.4 percent) were similarly soft due to the buoyancy of the pound.

February retail sales volumes were up 0.7 percent and were up 5.7 percent on the year. Excluding auto fuel, sales were also 0.7 percent higher than in January and rose 5.1 percent on the year. Excluding auto fuel, non-food purchases climbed a monthly 0.9 percent, easily more than reversing January's 0.4 percent drop. Within this group, non-specialized stores reported a hefty 1.7 percent surge, household goods were up 1.2 percent and clothing & textiles gained 1.0 percent. Non-store retailing jumped 1.9 percent leaving just the other stores category (0.2 percent) to underperform. Food sales were up 0.2 percent and auto fuel 0.4 percent. The apparent robustness of consumer demand continued to have no clear impact on prices. The total sales deflator posted a minus 3.6 percent annual rate, down from minus 3.1 percent in January and a new record low. Ex-auto fuel the rate was minus 2.0 percent after minus 1.6 percent.

Asia/Pacific

Japan

Consumer prices in February were down 0.2 percent on the month but were up 2.2 percent on the year. The critical CPI less fresh food slipped 0.1 percent from January and was up 2.0 percent. Adjusted for the sales tax increase, the CPI less fresh food was unchanged on the year. Energy prices continued to tumble, down 2.1 percent on the year after slipping 0.5 percent in January. Electronics declined 1.5 percent after slipping 0.1 percent the month before. TVs edged up 0.2 percent after adding a robust 1.2 percent in January.

Household spending declined for an eleventh straight month in February. On the year, spending was down 2.9 percent after sinking 5.1 percent in January. Consumption has been weak since last April when Japan raised its consumption tax by 3 percentage points to 8 percent. Spending in the majority of subcategories declined with only clothing & footwear (up 1.3 percent) and transportation & communication (up 1.0 percent) rising when compared with a year ago. The biggest drops were in furniture & household utensils (down 18.9 percent) and education (down 10.2 percent).

As expected the jobless rate in February improved to 3.5 percent from 3.6 percent in January. Separate data showed the country's job availability improved for the first time in two months. The ratio of employment offers to seekers rose to 1.15 in February -- its best level in almost 23 years -- from 1.14 in January, which means 115 positions were available for every 100 job seekers. The labour force participation rate improved to 59.1 percent (up 0.3 percent) from a year ago while the employment rate was up 0.4 percent to 57.1 percent. The Japanese yen was unmoved after the data, suggesting that for investors, this was all par for the course.

Retail sales were down for a second month in February. Sales were down 1.8 percent after dropping 2.0 percent in January as consumption continues to lag since the sales tax increase in April. Motor vehicle sales dropped for a fifth month, this time by 2.7 percent. Machinery and equipment dropped 9.9 percent. This category has now retreated for 11 months. Fuel was down for a fifth month, declining 17.8 percent in January. On the positive side, food & beverages were up 2.8 percent on the year and apparel added 1.9 percent.

Bottom line

Most stock indexes tumbled last week for several reasons including political issues and weak U.S. economic data. Investors continue to worry about looming Federal Reserve interest rate increases. While Japanese data continued to disappoint, many European readings showed an improvement in growth.

The coming week is shortened by the Good Friday holiday in many countries. In the U.S., banks are open but markets will be closed. The BLS will release the employment situation report that day. Final manufacturing PMIs for March will be reported along with other key European data. In Japan, the quarterly Tankan survey will be released and will give investors an up to date reading on business sentiment.

Looking Ahead: March 30 through April 3, 2015

Anne D Picker is the author of International Economic Indicators and Central Banks.