Global Markets

Most equity indexes advanced in the holiday shortened week. Investors were cautious on Thursday — with most markets closed Friday for Good Friday, investors would not be able to respond to the U.S. employment report, scheduled for Friday morning.

March manufacturing PMIs

The best news from the spate of March manufacturing PMI readings were from the Eurozone where the reading jumped to 52.2 from 51.0 in February. The improvement was led by the fastest expansion of incoming new business since April 2014 and the strongest rise in employment in more than three-and-a-half years. Exports saw their largest gain since July 2014 with most countries benefitting from the weakness of the euro. Input costs ended a 6-month run of declines by posting a modest advance, again in part reflecting the impact of the slide in the euro on import prices. Factory gate charges continued to drop but at their slowest rate in the current 7-month sequence of declines.

Germany (52.8), Italy (53.3) and Spain (54.3) all registered multi-month highs but while France also saw its PMI reading edge up. But at 48.8 it remained stubbornly on the wrong side of the 50 growth threshold. On top of the PMI ladder was again Ireland (56.8) while Austria (47.7) occupied the bottom rung with a 4-month low.

The results were weak in Japan and China but improved in the U.S. and UK. In Japan, the final reading retreated to 50.3 from a more robust 51.6 in February. And China's reading indicated that manufacturing contracted slightly at 49.6 after a reading barely over 50 the month before. Better news was from the U.S. and UK. The U.S. PMI climbed to 55.7 from 55.1 while in the UK, the reading edged up to 54.4 from 54.1 in February. The global reading for March manufacturing PMIs slipped to 50.8 from 52 the month before, indicating that the sector continued to expand at a modest, yet steady pace.

Global Stock Market Recap

Europe and the UK

Equity indexes with the exception of the FTSE advanced on the week. Both the FTSE and OMX were down for the month of March. However, all indexes gained in the first quarter.

On the week, the FTSE retreated 0.3 percent while both the CAC and DAX added 0.8 percent and the SMI was 0.5 percent higher. But investors were cautious Thursday ahead of the Good Friday and Easter holidays when most markets will be closed. The March U.S. employment report will be released Friday. Investors are unsure what kind of result to expect after U.S. private sector employment data came in weaker than expected Wednesday but weekly jobless claims dropped by more than anticipated Thursday.

The Greek saga continues. Greece submitted a fresh list of economic reforms to its creditors late Wednesday in a bid to unlock financial aid and avoid a default. However, its Eurozone partners indicated that although there was progress, more work was needed to reach a deal.

European Central Bank minutes

The European Central Bank published minutes of its governing council meeting held on March 4 and 5 in Nicosia, Cyprus. Probably most interesting for the financial markets was the reaffirmation of its commitment to implement quantitative easing in full (€60 billion a month through September 2016), although anything else would have come as a major shock. Similarly, the ECB restated its view that the minus 0.2 percent deposit rate should be seen as the lower bound, effectively meaning that any further interest rate cuts are not on the table. Members of the governing council stressed that there was a high degree of uncertainty surrounding the revised economic forecasts. But at the same time, they stressed that the main risk was still on the downside despite the potential benefits of the slump in oil prices.

The governing council was clearly pleased with the way in which the Eurozone economy and financial markets had evolved during the previous couple of months but, equally, remained cautious over the speed with which HICP inflation would return to its near-2 percent medium term target. The bottom line is that so long as overall monetary conditions continue to evolve as seen in much of the first quarter, the ECB is unlikely to do any significant tinkering with policy. For the time being it would appear that ECB policy is going nowhere in a hurry unless the potentially destabilizing effects of any "Grexit" dictate otherwise.

Asia Pacific

Equity indexes with the exception of the All Ordinaries advanced in the holiday shortened week. While all indexes advanced in the first quarter, March results were decidedly mixed. Impacting results were continued declines in commodity prices. Surveys added to negative sentiment with March manufacturing PMIs for China and Japan easing and the Bank of Japan's Tankan disappointing. Data from the U.S. had mixed reactions — weaker data was interpreted to mean that the Federal Reserve's policy normalization will begin later. But the weaker data also implied — at the same time — slower growth. The latter is worrisome to countries that rely on the U.S. as their most important export market.

The Shanghai Composite increased for a fourth consecutive week, this time jumping 3.6 percent. Equities surged to a seven year high, with infrastructure stocks rallying after Beijing unveiled details of an ambitious plan to better connect the economy with the rest of Asia, Africa, the Middle East and Europe with more roads, railways, ports and other related projects. Dovish comments from People's Bank of China's Governor Zhou Xiaochuan also bolstered expectations that policymakers will unveil further stimulus measures to boost the economy amid growing deflationary risks. The index added 13.2 percent in March and 15.9 percent in the first quarter.

The Nikkei inched up 0.1 percent on the week and added 2.2 percent in March. For the first quarter, the index was up a very healthy 10.1 percent. March 31 marked the end of Japan's fiscal year with the Nikkei gaining 29.5 percent. Economic data disappointed during the week with the March manufacturing PMI retreating to a reading of 50.3 from 51.6 in February. The first quarter Tankan results were lackluster with little change from the fourth quarter. The large manufacturers' reading was unchanged from the fourth quarter at 12 while capex declined.

Although the All Ordinaries advanced 8.8 percent on the quarter, the gain was due to the index's stellar performance in January and February. The index lost 0.6 percent in March. On the week, it was 0.3 percent lower. With a monetary policy meeting looming on April 7, investors are keeping a close eye on economic events leading up to the Reserve Bank of Australia's announcement. Expectations are that the RBA will cut its policy interest rate 25 basis points to 2.0 percent. While equities have performed relatively well despite the recent declines, the Australian dollar has been pummeled.

Currencies

The U.S. dollar continued to retreat after its rally earlier in the year amid weaker than expected U.S. economic data. However, for the week ending Thursday, the dollar was down against the Canadian dollar and unchanged against the Swiss franc. However, it managed to gain against the Australian dollar, euro, yen and pound sterling despite Thursday's weakness. Most of the weakness occurred as traders squared positions prior to the release of the March U.S. employment report scheduled to be released on Friday when markets will be closed.

On Thursday, the euro rallied as investors continued to digest Wednesday's upbeat manufacturing data from the Eurozone, which contrasted with disappointing ISM manufacturing survey and ADP private employment data in the U.S. Recent signs of weakness in the U.S. economy have prompted investors to push back their bets for the first Federal Reserve interest rate increase which has stalled the dollar's gains. The euro remains about 10 percent lower against the dollar this year. However, the recent pause in its decline, bouncing back from a 12-year low of $1.05 in March, means there is scope for further declines.

Selected currencies — weekly results

Indicator scoreboard

EMU

February jobless rate eased to 11.3 percent but only after the January rate had been revised up 0.2 percentage points to 11.4 percent. There were 18.204 million out of work in February, a decline of 49,000 from the start of the year. The 11.3 percent unemployment rate is the lowest since May 2012. According to Eurostat methodology, Germany (4.8 percent) had the lowest rate, beneath Austria (5.3 percent) and Luxembourg (5.8 percent). Greece (26.0 percent in December) continued to occupy the top rung ahead of Spain (23.2 percent) and Cyprus 16.3 percent).

March flash harmonized index of consumer prices was down 0.1 percent on the year. That was 0.2 percentage points higher than the January final of down 0.3 percent. The increase in overall prices was due to higher energy charges and the yearly rate here jumped from minus 7.9 percent to minus 5.8 percent. Significantly, changes were much less dramatic elsewhere. Excluding food, alcohol, tobacco & energy as well as omitting just unprocessed food and energy, the rate actually dipped to a decline of 0.6 percent. Among other major sectors, annual inflation fell 0.2 percentage points to 1.0 percent in services and held steady at minus 0.1 percent in non-energy industrial goods. Food, alcohol & tobacco edged up from 0.5 percent to 0.6 percent.

Germany

March unemployment was down 14,000 but was short of February's unrevised 20,000 decline. It was sufficient to see the unemployment rate slip to a record low of 6.4 percent. March's drop in joblessness was also accompanied by a 4,000 increase in vacancies, double the rise posted last time and pointing to further gains in employment despite signs of skills shortages in some areas. The latest decline means that unemployment shrank 44,000 over the first quarter. Combined with the introduction of a national minimum wage in January, coming months should see at least some increase in underlying pressure on consumer prices.

United Kingdom

Final estimate of fourth quarter gross domestic product was revised up to 0.6 percent on the quarter from the second estimate of 0.5 percent. The yearly change was boosted by 0.3 percentage points to 3.0 percent, equaling its fastest pace since the second quarter of 2006. Net trade was revised upward which, with exports increasing 4.6 percent and imports up 1.6 percent, added 0.9 percentage points to the quarterly change in total output. Elsewhere in the national accounts, household consumption rose a healthy enough 0.6 percent but gross capital formation was down 2.8 percent within which fixed investment dropped 0.6 percent. General government final expenditure slipped 0.2 percent and business inventories subtracted 0.4 percentage points.

Asia/Pacific

Japan

February industrial output dropped a surprising 3.4 percent on the month. It was the first decline since November. The data corroborate the flash manufacturing PMI for March that indicated the economy continues to struggle as it tries to recover from the latest recession. Expectations were for a decline of 1.7 percent on the month. Among the industries that declined were general purpose, production & business oriented machinery (down 5.6 percent after jumping 9.1 percent in January), transport equipment (down 3.6 percent after rising 4.0 percent) and electronic parts & devices (down 7.4 percent after increasing for the preceding seven months). METI also reports a forecast of production for the next two months. Production is expected to slide 2 percent in March but rebound 3.6 percent in April.

First quarter 2015 Tankan, a survey of more than 10,500 companies, indicates continued weakness going into the new fiscal year beginning April 1. The quarterly survey gives a strong sense of business conditions across the manufacturing and services sectors, big and small, as Japan's new fiscal year begins. Large manufacturers' index disappointed and was unchanged with a reading of 12 from the fourth quarter 2014. Expectations were for the index to increase to 15. Small manufacturers' index reading disappointed as well. It was 1, down from the fourth quarter's revised reading of 4. Survey participants see weaker overseas demand while domestic demand is flat. Auto and electronics firms are cautious when it comes to the weak yen effects. Expectations were for a modest decline of 0.7 percent for Capex. The actual was a decline of 5.0 percent on the year.

Australia

February trade deficit expanded to A$1.3 billion from the revised A$1.0 billion in January. Expectations were for a deficit of A$1.4 billion. Exports were up 1.0 percent. Rural exports were up 11.0 percent while non-rural goods were down 1.0 percent. Non-monetary gold was up 8.0 percent. Contributing to the increase in rural goods were other rural and cereal grains & cereal preparations. Contributing to the decline in non-rural exports were metal ores & minerals and transport equipment. However, coal, coke & briquettes and other mineral fuels partially offset the decline. Imports were up 1.9 percent. Both intermediate & other merchandise goods and consumption goods were up 3 percent. Contributing to the increase in consumption goods were textiles, clothing & footwear and household electrical items. Imports of capital goods were down 2.0 percent. Civil aircraft contributed to the decline.

Americas

Canada

January monthly gross domestic product slipped 0.1 percent and was up 2.4 percent on the year. January's reversal was wholly attributable to a 0.3 percent decrease in service sector activity. This was largely due to a 2.6 percent slump in wholesale trade and a 1.0 percent fall in retail trade although transportation & warehousing (down 0.8 percent) and accommodation & food (also down 0.8 percent) endured a poor period too. The only increase of any note was in arts, entertainment & recreation (0.7 percent). By contrast, the goods producing sector expanded 0.3 percent on the month although this masked a 0.7 percent drop in manufacturing and a 0.4 percent decrease in construction. Support was provided by agriculture, forestry, fishing & hunting (1.9 percent), mining, quarrying & oil & gas extraction (1.4 percent) and utilities (also 1.4 percent).

Canada's trade gap narrowed from C$1.5 billion in January to C$984 million in February. January's deficit was revised down sharply from C$2.45 billion to C$1.5 billion. Imports declined 0.7 percent in February while exports were up 0.4 percent. Import volumes dropped 1.7 percent while prices increased 1.1 percent. For exports, volumes were down 3.3 percent while prices jumped 3.9 percent. Imports from the United States declined 1.2 percent to C$29.8 billion in February. Imports from countries other than the United States edged up 0.3 percent led by Mexico and Saudi Arabia. Exports to the United States were up 1.1 percent to C$32.8 billion. Exports to countries other than the United States were down 1.5 percent to C$10.8 billion, with the United Kingdom and Japan contributing the most to the decline. As a result, Canada's trade surplus with the United States widened from C$2.2 billion in January to C$2.9 billion in February. Canada's trade deficit with countries other than the United States widened from C$3.7 billion in January to C$3.9 billion in February. Imports were down as 7 of 11 sections declined. Exports increased as 5 of 11 sections advanced.

Bottom line

Most equity indexes advanced for the week, the month of March and the first quarter of 2015. The U.S. dollar rallied in the first quarter as well despite recent cooling. There were positive signs of growth in the Eurozone. However, weakness was evident in China, Japan and Australia.

Four major central banks meet this week including the Reserve Banks of India and Australia and the Banks of Japan and England. Analysts think the RBA will cut rates while the rest maintain the status quo. Industrial production and merchandise trade data dominate indicator releases for the week in Europe. China posts its March consumer and producer price indexes. In the U.S., market watchers will hone in on the minutes of the most recent FOMC meeting as they evaluate when the Fed will begin to normalize interest rates.

Looking Ahead: April 6 through April 10, 2015

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